The monetary organization is still not detailing what that particular vehicle will look like and confirms greater flexibility in reinvesting its emergency debt purchase program
The European Central Bank (ECB) is sending a signal to the market of its commitment to avoid what it now calls “financial fragmentation” in light of the recent rise in risk premiums in peripheral countries such as Spain.
The monetary organization surprised early in the morning with an emergency meeting forced by the tensions experienced in government bond markets in recent days, with a wave of sales that has boosted the profitability of European paper (indicating the interest investors desire to buy a country’s debt) are reviving old ghosts of the region’s sovereign debt crisis.
The simple announcement of the meeting caused a rebound in the equity markets from the very first hour and calmed the debt markets. However, the reaction was negligible after a statement of just two paragraphs in which the monetary institution confirmed what it had already hinted at at its latest meeting, held last week. In particular, it will apply flexibility in the reinvestment of the Emergency Purchase Program (PEPP). In other words, it will be able to acquire more debt from the southern European countries to keep the risk premiums in check.
The main novelty of the meeting is that, as the body confirms in its statement, the Eurosystem committees have been given a mandate to “accelerate the design of a new instrument” – the details of which are still unknown – to prevent the escalation of risk premiums and higher financing costs for states.
“Since the gradual process of monetary policy normalization began in December 2021, the Governing Council has committed to act against the resurgence of fragmentation risks,” he said in its statement. “The pandemic has left lasting vulnerabilities in the euro area economy that actually contribute to the uneven transmission of the normalization of our monetary policy across jurisdictions,” it warns.
Market reaction to the statement has been rather lukewarm, with investors anticipating this possibility from day one. In the debt markets, the yield on the ten-year Spanish bond fell from 3.08% to 2.88%, while the Ibex-35 maintained the 1.5% gain it already showed before the announcement.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
