It consists of the extraordinary purchase of debt from a state, at the discretion of the institution itself. In this way, it tries to prevent the market from penalizing some countries and increasing the yield they demand on their debt.
The European Central Bank (ECB) has today authorized the creation of a anti-fragmentation mechanism to prevent the risk premiums of some eurozone countries from skyrocketing and thus avoid unwarranted increases in their financing conditions.
It is a transmission protection tool (Transmission protection instrument or TPI for its acronym in English) which the ECB deems necessary to ensure the effective transmission of its monetary policy and consists of the extraordinary purchase of debt from each country, at the discretion of the institution itself.
In this way, it tries to prevent the market from putting some countries at a disadvantage and increasing the yield they demand on their debt, which would make it difficult for the ECB to fulfill its price stability mandate, i.e. keep inflation under control. . the environment of the two percent.
The TPI becomes an extra tool of the ECB and can be activated to “counteract” “disorderly and unjustified” movements in the debt market, which pose a serious threat to the transmission of monetary policy across the eurozone.
In this way, the Eurosystem will be able to buy on the secondary market debt issued in countries whose financing conditions are deteriorating without this being justified by the country’s economic situation. The size of the purchases, the ECB adds, will depend on the severity of the risks to which monetary policy is passed.
Under the anti-fragmentation mechanism they would be executed purchases of government debt of each country, either by state or by regions, with a residual maturity between one and ten years, but the ECB also leaves open the possibility to consider purchases of private debt“if appropriate”.
To trigger TPI purchases, a country’s compliance with the European Union (EU) tax framework, such as are not subject to an excessive deficit procedure or have severe macroeconomic imbalancesbut budget and economic policy sustainability will also be taken into account.
With the TPI purchase programme, the Eurosystem accepts the same treatment as the rest of private or other public debt creditors.
However, before launching this “extraordinary” mechanism, the ECB insists that it will continue to use the emergency purchase program in the face of the pandemic, known as PEPPwhich will remain the first line of defense.
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Source: EITB
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.
