ECB’s new tool may come up short

At the June 15 emergency meeting, the ECB announced it will reinvest maturing bonds “flexibly” under its pandemic emergency purchase programme (Pepp). But the mechanism for reinvestment is unclear. 

The second existing tool is Outright Monetary Transactions (OMT). Created during the 2012 debt crisis, OMT involves the ECB buying a country’s sovereign debt in the secondary markets — as long as that country has agreed to strict conditionality. It has never been used

ECB governing council has tasked staff with devising a new tool to address fragmentation. They hope to announce it at the next policy meeting on July 21. I fear it will come up short

To overcome opposition from northern European countries concerned about moral hazard and avoid legal challenges, the anti-fragmentation tool must have conditions

Italy has about €200bn in debt to roll over later this year and an additional €305bn next year.

Megan Greene Senior fellow at Harvard Kennedy School and chief economist at Kroll FT 28 June 2022

Crisis looms if the ECB’s new tool comes up short | Financial Times