Draghi urged leaders of the 17 countries that use the euro to use their bailout fund to take the same action, sending a clear message: Europe's financial crisis requires more forceful remedies than leaders have so far been able to muster.
The move towards bond buying came a day after the Federal Reserve hinted it was leaning toward further action to stimulate U.S. growth, highlighting the growing pressure on central bankers to rescue weak economies across the globe.
Financial markets were disappointed by the lack of immediate action and that the bank had few specifics to offer on the bank's emerging plan to save the euro. Stocks were sharply lower across Europe, while borrowing costs crept higher for the eurozone's financially strapped countries.
Draghi said ECB policymakers will work on a more detailed plan in coming weeks, including how much money to put into the effort to lower interest rates on governments' short-term bonds. The bank would hope for better results than an earlier bond-buying effort that had only limited impact.
Draghi's remarks came during a press conference that followed a bank decision to keep its benchmark short-term interest rate unchanged at a record low 0.75 per cent.
"There wasn't any specific instance that led us to the decision we had today, just a sense of the worsening crisis and the worsening consequences," Draghi said.
He said the recent spike in interest rates for the short-term bonds of countries such as Spain and Italy was a symptom of larger stresses across the region, which faces slower growth and rising unemployment.
Negative reaction in the markets was strongest in Spain and Italy, the third- and fourth-largest economies in the eurozone and the countries most vulnerable to high borrowing costs. The interest rate, or yield, on Spain's 10-year bonds rose above 7 per cent, while the country's main stock index plunged by nearly 5 per cent. The yield on Italy's 10-year bonds climbed above 6 per cent and the country's main stock market index sank by more than 4 per cent. The euro fell 0.2 per cent to $1.2215.
In the U.S., the Dow Jones industrial average fell 144 points to 12,827.
Financial markets in the U.S. and Europe had risen last week after Draghi gave a speech in London that many investors interpreted as a signal that the bank would take decisive action.
Yet help is not automatic. Countries would have to ask for that help first from the European Financial Stability Fund and its successor, the European Stability Mechanism. Member governments must agree, and recipients of help must agree to tough reform conditions to get the money.
"The ECB disappointed those who had hoped for the Big Bertha to fire immediately," said Joerg Kraemer, chief economist at Commerzbank, referring to the super-heavy artillery Germany used in World War I.
"Instead, the ECB wants the problem countries to first turn to the ... bailout fund."
In the U.S., the Fed said in a statement that it would closely monitor economic data to determine whether and when to take additional steps.
Many economists believe the Fed could announce a new bond-buying program at its September policy meeting, aiming to further reduce long-term interest rates, which are already at historical lows. The Fed has already purchased more than $2 trillion in Treasury and mortgage-backed securities as part of two earlier programs aimed at lowering interest rates to encourage more borrowing and spending.
China's central bank cut interest rates twice last month to shore up its economy, the second-largest in the world, after economic growth slowed to a nearly three-year low of 8.1 per cent. The Bank of England announced a plan last month to buy another 50 billion pounds in government bonds from financial institutions, hoping the banks will use the extra cash to lend to businesses and households.
This would not be the ECB's first try purchasing government bonds from banks on secondary markets to help drive down interest rates. That effort began in May 2010 and stopped in March after it did not decisively lower borrowing costs. The bank purchased more than €210 billion ($255 billion) in government bonds — but the program wasn't big enough to make a difference in the market. This time the ECB is promising any intervention will have "adequate size."
Draghi warned financial markets not to underestimate leaders' resolve.
"It's pointless to bet against the euro," Draghi said, following up comments he made last week that the ECB would do "whatever it takes" to preserve the currency union. The euro, he said, is "irreversible."
Before any bond buying can begin, the ECB's governing council needs to formally approve the plan. Draghi acknowledged that support is not unanimous, with strong skepticism coming from the influential head of Germany's Bundesbank, Jens Weidmann, who sits on the ECB council.
The ECB has to be cautious because its charter states that the bank cannot finance governments' debts. Draghi said the bank would seek to lower rates to ensure its interest rate policy was being spread throughout the eurozone. Right now market borrowing costs are much higher in the weaker countries despite record low benchmark rates from the ECB.
Draghi emphasized that ECB action alone cannot save the euro. He pressed leaders of the euro region to cut their budget deficits and to make economic reforms that will make their countries more competitive on global markets.
Member governments of the 17-country euro have already bailed out Greece, Ireland and Portugal with emergency loans after high borrowing costs left them unable to pay their debts. But Spain and Italy are much larger and if they should be cut off from affordable borrowing, any bailout would strain the eurozone's bailout funds.
The temporary EFSF has €440 billion ($534.5 billion) in lending power, most of it committed to the bailouts for Greece, Ireland and Portugal. The ESM has not come into effect yet, but will have €500 billion ($607 billion) — one-fifth of which is already committed to bailing out Spain's banks. Spain and Italy together have some €2.5 trillion ($3 trillion) in debt.
AP Economics Writer Martin Crutsinger contributed to this report from Washington.Suggest a correction