Transmission Protection Instrument (TPI)

ECB Governing Council approved the Transmission Protection Instrument (TPI)

ECB 21 July 2022

https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220721~973e6e7273.en.html

The TPI — which could be nicknamed ‘To Protect Italy’ — 

will be unlimited in size and depend in scale on severity of risks. But the euro markets remain unconvinced, seeing this as a shaky compromise. 

Defining such issues as the sustainability of a country's debt is a highly contentious issue, something German Bundesbank chief Joachim Nagel highlighted rather pointedly earlier this month.

Marcus Ashworth Bloomberg 21 juli 2022

https://www.bloomberg.com/opinion/articles/2022-07-21/ecb-s-crisis-plan-fails-to-convince-bond-traders

ECB is belatedly making more use of its neglected secondary mandate. 

That mandate is often forgotten or outright denied. 

But subject to stabilising prices, the central bank is legally obliged by the EU treaties to support the bloc’s general economic policies. 

Martin Sandbu 21 July 2022

https://www.ft.com/content/3f1e6cb3-1a63-412e-bb1f-a8624760fd86

Are there conditions attached?

The ECB’s previous purchases of sovereign bonds have been challenged repeatedly in Germany’s constitutional court and there are almost certain to be similar moves against its latest plan. 

To protect itself, the ECB has attached some relatively light conditions to the new tool.

FT 21 July 2022

https://www.ft.com/content/c5499acd-0271-458d-8363-9e75633399ee

Lagarde’s most memorable comment “we are not here to close spreads”

John Authers Bloomberg 10 juni 2022

https://englundmacro.blogspot.com/2022/06/we-are-not-here-to-close-spreads.html

Buy private sector debt? Really?

I am confident this exceeds the ECB's legal mandate, but no one seems to care about such matters these days.

This is an illegal power grab designed to bail out peripheral Europe, especially Italy, Greece, Spain, and Portugal. 

The ECB's move highlights a fundamental flaw of the Eurozone. There is no single interest rate that makes sense for widely diverse countries with different work rules, pension plans, and productivity.

Mish 21 July 2022

https://mishtalk.com/economics/ecb-unexpectedly-hikes-rates-to-zero-unveils-controversial-new-plan-for-distressed-countries

The European Central Bank may have just gone from “whatever it takes” to “whatever it wants.”

This once again puts the central bank explicitly in the political role of disciplining rebellious governments, as it did with Greece in 2015.

WSJ 21 July 2022