The European Central Bank has agreed to launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis.

Seeking to back up his July pledge to do whatever it takes to preserve the euro, ECB President Mario Draghi said the new plan, aimed at the secondary market, would address bond market distortions and 'unfounded' fears of investors about the survival of the euro.

The scheme, which the Bundesbank has opposed, would focus on bonds maturing within three years and was strictly within the ECB's mandate, Draghi said. Only one member of the ECB Governing Council had dissented, he said.

'Under appropriate conditions, we will have a fully effective backstop to prevent potentially destructive scenarios,' Draghi told a news conference after the central bank's monthly meeting.

'No ex-ante quantitative limits are set on the size of outright monetary transactions,' he said, using the formal term for ECB bond-buying programmes.

Investors were on tenterhooks, waiting to hear how decisively the ECB would act to help bring down the borrowing costs of Spain and Italy, after disagreements among policymakers on the plan were played out in public last week.

Draghi's statement met expectations, analysts said. With the bond-buying plan the focus of Thursday's meeting, the ECB kept interest rates on hold, leaving its main rate unchanged at 0.75 percent.

'The details ... released today add to the credibility of the safety net taking shape in the euro zone and should support demand for euro zone assets,' said Andrew Cox, G10 strategist at CitiFX in New York.

Pressure on Draghi intensified after an unsubstantiated German newspaper report last week that Bundesbank chief Jens Weidmann had considered resigning over his opposition to bond-buying, although several sources say he has made no such threat and believes in staying at the table to argue his case.

Draghi succeeded in securing overwhelming support on the Governing Council for a plan that Weidmann can live with, despite his apparent negative vote.

The Bundesbank chief had expressed concern that intervening in the bond market would break the ECB taboo of financing euro zone member states. Other ECB policymakers saw a greater urgency to help Spain and Italy and prevent the euro zone crisis from deepening.

Draghi said the ECB would only help countries that signed up to and implemented strict policy conditions, with the euro zone's rescue fund also buying their bonds, and preferably with the IMF involved in designing and monitoring the conditions. – Reuters