The Euro as a currency is in trouble because some of the members economies are very weak. This includes countries like Greece that have crippling debts and Spain who have 25% unemployment as a result of the economic downturn.
Confidence in the Euro is low which has led to the exchange value of the currency falling. There are also worries that some Euro area countries cannot pay their debts and so when they try to borrow more money they pay very high interest rates as the risk to lenders is high. This is making an economic recovery very difficult.
The new plan allows the European Central Bank (the ECB) to buy the bonds issued by countries that are used to raise the money they need. This will help fund their spending if they are new bonds. But more likely the ECB will buy old bonds. Whatever method is used in doing so the price of the bonds will rise.
The price of a bond and the rate of interest paid move in opposite directions (they are inversely related) and so the Euro area countries should find themselves paying lower interest rates on their debt. This will reduce pressure on their budgets, allow them to spend more and tax less and hopefully boost economic growth. It will also let households and firms borrow at lower rates, boosting Consumption and Investment.
This move has been bitterly opposed by the Germans, who think that basically it means German money buying other countries debt. But the move is long overdue, although possibly far too late.
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