Avatar

The European Central Bank will create a new



Reading time: 2 minutes

The European Central Bank (ECB) announced on Wednesday that it intends to create a new tool to address the risk of the eurozone fragmenting, in a move aimed at allaying fears of a new debt crisis, CNBC reports.

The decision comes after the central bank surprised market participants with an emergency meeting to address higher borrowing costs for many European governments.

“Since the gradual policy normalization process was launched in December 2021, the Governing Council has committed itself to taking action against the risks of fragmentation,” the ECB said in a statement. The pandemic has left lasting vulnerabilities in the eurozone economy, which really contributes to the uneven transmission of the normalization of our monetary policy between jurisdictions, the bank explained.

The comments reflect the rise in bond yields over the past week.

After a regular policy meeting last week, the ECB suggested a more aggressive tightening of policy, but failed to offer new measures to support heavily indebted countries in the bloc. This has caused some nervousness among fund managers over financial fragmentation, and has led to an increase in bond yields.

Italy’s 10-year bond yields topped 4% earlier this week – an economist says these levels could eventually become a “problem” for the southern European nation.

To address these concerns, the ECB said on Wednesday that it would reinvest the redemptions from its emergency bond purchase program – called PEPP – in a flexible way and that it would ask its team “to speed up the completion of the design of a new anti-fragmentation instrument. ”

Isabel Schnabel, a member of the ECB’s Executive Board, said in Paris on Tuesday: “Our commitment to the euro is our anti-fragmentation tool. This commitment has no limits. And our intervention history, when necessary, supports this commitment. “

European countries have faced significant borrowing costs following the sovereign debt crisis of 2011. Some of the imbalances have been addressed, but there are still concerns about the region as a whole, especially as it has a single monetary policy for 19 countries. different tax positions.

Italian 10-year bond yields fell on Wednesday morning, shortly after the ECB announced its unscheduled meeting. Yield extended losses during afternoon trading to close below 4%.

Borrowing costs for other eurozone governments also fell following the news, with Greece’s 10-year bond yield falling by more than 7%.

In the foreign exchange markets, the euro appreciated against the US dollar, continuing the trend seen earlier in the session, when the news broke that an emergency meeting would take place.

Shares of Italian banks, which rose earlier on Wednesday, continued to rise following the monetary policy decision.