Talk of “Frexit” is overblown. TPI TLTRO
France is part of the bedrock of the European Union, not just a peripheral nation. Its economy is nowhere near as weak as Greece’s was in 2012.
While both its budget deficit and debt burden are deteriorating, neither is as bad as those of Italy.
Moreover, the European Central Bank is now much more proficient at coming up with new tools to defend the common currency project.
The EU’s collective ability to set aside differences, displayed during the euro crisis and repeated in its €800 billion NextGeneration pandemic fiscal program, is its greatest strength.
Its willingness to compromise on even the thorniest of political and economic issues means the risk of a "Frexit" can be firmly discounted at this juncture.
If Marine Le Pen's National Rally gets to lead the government, it's worth noting that her party has carefully moderated its euroskeptic stance in recent years, pushing instead for reform from within.
Nonetheless, European Commission concern about the increasing French budget deficit, which rose to 5.5% of gross domestic product last year, won’t be assuaged by a tense domestic political scene.
Christine Lagarde doesn't need to worry her speechwriters yet, but it would be wise to have internal consultations on which tools from its expanded arsenal the ECB might bring to bear if the current market moves threaten to become dysfunctional.
The ECB's Transmission Protection Instrument, for example, was approved in July 2022. It helped to quell an Italian political wobble, but it remains more of a conceptual tool than a real-life bazooka
Marcus Ashworth Bloomberg 18 June 2024
The pandemic brought out the best in the European Union. The €807 billion NextGeneration program was lauded as a Hamiltonian moment
Funded by bond sales that currently total €450 billion and are set to double by 2026, the bloc faces hard decisions on either permanently making the program the main EU financing vehicle
— or accepting that centralized borrowing was just a one-time emergency measure.
Marcus Ashworth Bloomberg 18 Oktober 2023
ECB’s €500 Billion TLTRO repayments and Italian Banks
Bloomberg 14 juni 2023
The ECB Risks Downgrading Its Bond Bazooka to Peashooter
Marcus Ashworth Bloomberg 8 juli 2022
https://englundmacro.blogspot.com/2022/07/the-ecb-risks-downgrading-its-bond.html
The biggest bazooka of all in the monetary policy arsenal
Targeted long-term refinancing operation - TLTRO
https://englundmacro.blogspot.com/2019/05/the-biggest-bazooka-of-all-in-monetary.html
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