(This is an unedited version of my Sunday Business Post column from the 25th of January.)

ECB President Mario Draghi’s announcement of quantitative easing (QE) was like the Late Late Toy Show for monetary policy geeks. Having leaked the fact that the ECB would begin asset purchases of around 50 billion euros for 18 months to restore inflation to the flagging eurozone, Mario then announced 60 billion’s worth of purchases until at least September 2016.

An old hand I spoke right after the announcement to found it hilarious, calling it an old trick US corporates used to do in the 80s when announcing their earnings—leak a lower number then beat the leaked number to juice the stock, and to avoid the crucial announcement being greeted with a ‘meh’ by the markets. Mario’s body language, even joking with the Press, said it all: ‘relax folks, I’ve got this.’

That’s exactly what Mario did on Thursday. Mario will inject at least 1.26 trillion euros into the system over the next two years, while making liquidity freely available through the targeted longer-term refinancing operations (TLTROs) at the same rate as regular repo. This will take the ECB’s balance sheet from around 2 trillion euros to around 3 trillion euros. It is the type of policy we should have seen in 2009, not 2015. But even 6 years late, Draghi's announcement is important and welcome.

The effects on the market of the Draghi juicing were instantaneous. The euro dropped to a level not seen since 2003, falling by almost 1 per cent 20 minutes after Draghi’s announcement. Every graph looked like a cliff or a rocket taking off. Sovereign yields compressed across the eurozone—apart from German Bunds—the price of oil fell and the price of gold rose, everyone agreed it was just about the limit of what the ECB could do under its current mandate, with some of its members implacably opposed to QE in any form.

Critics say the ECB’s QE is too small, that €1,260,000,000,000 is just not enough, or the Eurozone is too broken, and the problems are insurmountable with just more liquidity. What is required is structural reform, particularly changing work practices and wages and eliminating protected sectors.

I think ECB-QE will work. Let me explain why.

QE: Good and bad news

First the good news: Draghi’s not going to stop buying 60 billion euros worth of stuff until eurozone inflation looks like it is trending upwards to 2%, the ECB’s mandated price level. Giving himself plenty of wiggle room during his speech, this means Draghi has turned on a hosepipe of money and this is not going to stop until it looks like the target will be reached. So if QE takes 4 years to work, he will stick at it for 4 years.

The bad(ish) news is the lack of debt mutualisation—the ECB is only standing behind 20% of the risks these assets represent. The asset purchases will be done by the national central banks, who will bear 80% of the risk if any of these assets default. Critics of the lack of risk mutualisation include people like the IMF’s Christine Lagarde, so clearly Draghi’s decision is contentious, even among the global elites. That said, the assets the national central banks buy can be either public or private, and pricing issues are that big a deal. They can purchase corporate bonds, government bonds, equities, whatever. This means the national central bank can target wherever the system is weakest, and pump money into that weak spot on a bank’s balance sheet if necessary.

Tying QE to the national central banks means that each economy can’t really ‘grow’ its asset purchases beyond its share of the ECB pot, and so the relief any QE will give to each country will be relatively limited. Say Portugal needs the most help shoring up its balance sheets. The effective limits being placed on it imply QE alone won’t do the job if the problem is big enough.

But it will be significant, in that the profits (normally called seigniorage) on any assets held by the national central banks will go to governments, helping their balance sheets recover too. The economist Charles Wyplosz has estimated the net present value of that seigniorage today at around €2.3 and €14.5 trillion. Nothing to be sniffed at. So monetary policy will, increasingly, become fiscal policy. This is something Adair Turner has been arguing for years, and it is coming to pass. Draghi made the explicit connection yesterday between monetary and fiscal policy, saying that all monetary policies have fiscal effects.

Countries in bailout programmes like Greece and Cyprus have to behave if they are going to get any of this cash, and they will be subject to further strictures.

QE Channels: Our QE is not your QE

You all know how QE works at this stage. The ECB creates money and exchanges it for assets like bonds, driving down yields, driving up equity prices, and driving down the currency, helping exporters and increasing the price of imports. So each economy will get a competitiveness bump from the downward currency move, a shock to their price systems via the import channel, and the real economy should see more lending as banks have that bit more liquidity to do so.

QE began in earnest across the globe in 2009. The UK, US, and Japanese economies pumped trillions into their economies in order to shore up the balance sheets of fragile banks and financial intermediaries that formed the core of the problem. Each QE was very different, because the institutions doing the QE-ing were very different and the instruments they were using were different. The US and Japanese versions of QE worked mainly through the capital markets, while the UK QE worked through the bond and money markets in conjunction with the Bank of England to effect portfolio balances. This was all conditional on having one, unified capital market to allow these portfolios to rebalance.

The Eurozone, obviously, doesn’t have a unified capital market. The closest we get might be the Italian bond market. But that isn’t going to do the trick. The ECB-QE will work through national central banks as I’ve mentioned. This means they will effect the capital markets in their home markets first, which will then spill over into other markets in the usual way. The market for capital is global. So we will have a sort of ‘multiplier’ effect as spending in one market by a national central bank spills over into another as investors seek profits wherever they think they’ll find it. Estimating the size of this multiplier will be of great interest to market participants. It’s going to be a good bit bigger than one.

All of these funds are going to be channeled through the eurozone’s private banking system, the health of which nobody was sure about until the asset quality review programme concluded at the end of 2014. The ECB has only just taken over as the eurozone’ bank regulator, and now that it is sure it knows where the black holes are, it can use QE to help make these banks whole while at the same time as pushing credit into the real economy through these banks. It’s not quite the QE for the people but it is close enough. We’ll get healthier sovereigns, healthier banks, and a healthier non-financial corporate sector. Households won’t feel the QE love, but you can’t have everything.

I think we will see the largest effects of this version of QE through the exchange rate and credit channels. The portfolio effects the US and UK QE caused are already mirrored here in the Eurozone and indeed are priced in for many assets. The real changes will be seen therefore in fiscal health, the exchange rate, and banks.

Mario did a good day’s work.