The ECB Risks Downgrading Its Bond Bazooka to Peashooter
As surging inflation ends the era of negative rates and quantitative easing in the euro zone, a glaring hole in the bloc’s defenses has been revealed.
The outline of a so-called anti-fragmentation tool, which will be called the Transmission Protection Mechanism, is expected to be unveiled at the next ECB governing council meeting on July 21.
As I wrote last month,
a sufficiently potent backstop need never be used. The best example is the Outright Monetary Transactions program that former ECB President Mario Draghi heralded in 2012
The illegality of cross-subsidization remains an obstacle, with richer northern European states wary of bailing out their highly indebted southern neighbors. It’s an inherent flaw in the construct of the euro, an economic and monetary union without interwoven fiscal or banking pacts.
To successfully curb consumer prices after years of wanton stimulus, the ECB needs to increase borrowing costs, but it cannot do that if the unity of the euro zone is at stake.
Rate hikes and combating inflation, or fiddling while Rome burns?
Marcus Ashworth Bloomberg 8 juli 2022
Kommentarer