ECB boss Mario Draghi receives backing for bond-buying

The boost came from the European Court of Justice’s advocate general on Draghi’s 'big bazooka'

Mario Draghi, head of the European Central Bank, could unveil a bond-buying programme next week (Getty Images)

European Central Bank boss Mario Draghi’s bid to flood the eurozone with cash has been bolstered as a key legal opinion cleared the way for Frankfurt to buy up hundreds of billions worth of government debt to kick-start growth.

The boost came from the European Court of Justice’s advocate general on Draghi’s "big bazooka", unveiled in 2012 to calm market turmoil over a potential eurozone break-up.

The so-called Outright Monetary Transfers programme - never used - would have allowed the central bank to step in and buy up the debt of troubled countries in potentially unlimited quantities.

German academics challenged OMT, claiming it would break a EU ban on the central bank directly bailing out governments and that the ECB had overstepped its monetary policy remit.

But advocate general Pedro Cruz Villalon said the OMT programme was “compatible in principle” with European treaties, removing another hurdle from Draghi launching a quantitative-easing programme to buy up government bonds next week.

Villalon also said that limiting the size of the OMT "would seriously undermine" the potential beneficial effects and trigger speculation. His decision is preliminary but likely to be upheld by judges.

RBC Capital Market’s European economist Timo del Carpio said: "This is at the upper end of what the ECB could have hoped for. The main reason for that is that the ECJ suggests the OMT is consistent with the ECB’s mandate."

Clear Treasury analyst Peter O’Flanagan added: "This is not a binding result but it does open the door to the scale of potential QE."

Economists say that the ECB could pump as much as €1 trillion (£774.02 billion) into the eurozone’s barely growing economy.

Draghi, pictured, has already tried cutting interest rates to record lows, charging banks to leave deposits with the ECB to boost lending as well as trillions in cheap loans for the banking system.

The news pushed the euro to a new, nine-year low against the dollar - falling to $1.1728 at one point, below the levels at which it was launched in 1999,

Oil prices meanwhile came under pressure as the World Bank cut its growth forecast, pushing Brent crude as low as $45.59 before recovering.

Premier Oil wrote off $300 million (£197.5 million) today and will cut jobs as a result of the fall.