Mario Draghi led the European Central Bank (ECB) into a new era,pledging to buy government bonds in an asset-purchase program worthat least 1.1 trillion euros (US$1.3 trillion) to counter the threatof a deflationary spiral.

The ECB president unveiled a quantitative-easing program of 60billion euros per month until at least the end of September 2016 ina once-and-for-all push to revive inflation and the euro-areaeconomy. The region's 19 national central banks were handedresponsibility for 80 percent of the additional purchases and puton the hook for their own losses, a moved intended to assuagecritics.

A near-stagnant economy and the risk of deflation forcedDraghi's hand six years after the Federal Reserve took a similarstep to inject cash into the U.S. The 67-year-old Italian's gambleis that the benefits of quantitative easing—should it work—outweighthe threat of a backlash in Germany, whose politicians and centralbankers have vehemently opposed the move.

The ECB “decided to launch an expanded asset-programencompassing the existing purchase programs of ABS and coveredbonds,” Draghi told reporters in Frankfurt. “We see sustainedadjustment in the path of inflation which is consistent with ouraim of achieving our aim of inflation rates close to but below 2percent.”

Investors reacted by selling the euro and buying Europeanstocks. The shared currency declined to an 11-year low, losing 1.4percent to $1.1451 at 4:45 p.m. in Frankfurt. The Euro Stoxx 50added 0.8 percent. Athanasios Vamvakidis, head of G-10foreign-exchange strategy at Bank of America Merrill Lynch, saidthe plan was at the high end of market expectations

“We've been waiting for something like this,” Morgan StanleyChief Executive Officer James Gorman said in an interview withBloomberg Television in Davos, Switzerland. “This is a veryimportant first step and a necessary step.”

The ECB's shift exacerbates an emerging global split. While theFed is considering when to tighten credit, central banks inDenmark, Turkey, India, Canada, and Peru all announced surpriserate cuts in the past week. The Swiss National Bank shockedinvestors by dropping a cap on the franc.

Draghi made concessions to his critics. Reflecting the drive forconsensus that has been a hallmark of Europe's response to years ofrolling crises, Draghi allowed the inclusion of a limit to therisks that the Eurosystem as a whole will be exposed to.

Risk Sharing

The ECB will hold a share of the securities while requiringindividual central banks to conduct the bond purchases in the hopethat will make nations more responsible for the management of theireconomies.

Draghi said the ECB would limit its purchases to 25 percent ofany single bond issuance and 33 percent of the instrumentsavailable from one issuer. The debt held by the ECB would not besenior to other investors' purchases.

“With regard to sharing of hypothetical losses, purchases ofsecurites of European institutions, which will be 12 percent ofadditional purchases, will be subject to loss sharing,” the centralbanker said. “The ECB will hold 8 percent of additional assetpurchases. That implies that 20 percent of additional purchaseswill be subject to a regime of risk sharing.”

The curbs are aimed at calming concerns aired most loudly inGermany that the ECB is unfairly aiding uncompetitive nations thatdo little to help themselves. Those critics also say it's anunwelcome step into politics that effectively mutualizes debt risksand finances governments through the back door. BundesbankPresident Jens Weidmann has described quantitative easing as “sweetpoison” for governments.

German Concerns

“We took these concerns into account and that's why thisdecision will mitigate those concerns,” Draghi said.

That matters now because Greek elections in three days could bring to power a partyseeking to renegotiate the country's debts, most of which are heldby European taxpayers.

Draghi held out the prospect that junk-rated Greece could stillbenefit from asset purchases by July if it remains in aEuropean-Union monitored program.

“There's a waiver that has to remain in place, and there's this33 percent issuer limit,” Draghi said. “If all other conditions arein place, we could buy bonds I believe in July because there willbe some large redemptions.”

The downside of the horse-trading is that the programpotentially packs less punch and the unwillingness to share riskexposes fault lines in the monetary union. If investors reject itas insufficient, the ECB may have to do even more later.

“The ECB left the option open to continue the purchases beyongSeptember 2016,” said Christian Schulz, senior euro-area economistat Berenberg Bank in London. “Expectations have risen considerablyin recent days, but the ECB still managed to beat most today.”

–With assistance from Alessandro Speciale and Angela Cullen inFrankfurt, Catherine Bosley in Zurich, Scott Hamilton, JenniferRyan and Brian Swint in London and Karl Stagno Navarra inValletta.