The ECB’s tool for taming markets when interest rates rise may never need to be used if large enough

Yannis Stournaras, member of the Governing Council of the European Central Bank (ECB), said a new tool to keep debt market turmoil at bay as interest rates rise may not need to be deployed if it’s strong enough to attract investors to convince you not to test it.

In an interview, Mr Stournaras said there was a “very good debate” going on about the instrument and expressed his confidence in an “amicable, efficient solution” which he hopes will put markets “on the positive side”. will surprise.

“I think there’s a lot of truth in the notion that if we convince the markets that this will be a powerful tool, we might not need it,” said the dovish Bank of Greece governor. “We’ll have it on the shelf. That’s the good scenario.”

Amid record inflation, ECB officials are preparing for a series of rate hikes to ensure there is no negative reaction in the bond markets of the eurozone’s more vulnerable members.

Since a spike in Italian government yields in June, they have accelerated work on the so-called anti-fragmentation tool, previously dubbed the Transmission Protection Mechanism by policymakers.

Mr Stournaras’ comments are reminiscent of the ECB’s Outright Monetary Transactions programme, which followed former President Mario Draghi’s famous pledge to do “whatever it takes” to keep the eurozone together amid a sovereign debt crisis.

In this case, his words were persuasive enough that OMT was never used.

While officials are not yet sure if the new tool will be ready for their decision on July 21, Mr Stournaras was more optimistic, according to people familiar with the matter. However, he declined to elaborate on the terms of countries’ access to the new facility.

However, he stressed that the instrument was necessary in the absence of more comprehensive reforms of the European Union.

“We could have episodes of fragmentation, not because of politics, just because we are an imperfect economic and monetary union,” Mr Stournaras said.

“We should fix this, but until that is achieved the ECB needs to consider the transmission mechanism.”

In a speech, Mr Stournaras said it was time for Europe to move towards fiscal union.

“It is time to overhaul the fiscal framework enshrined in the Stability and Growth Pact,” he said.

“Our goal should be to ensure the debt sustainability of the member states, to achieve an anti-cyclical fiscal policy and to create a central fiscal capacity for all euro member states.” The ECB’s tool for taming markets when interest rates rise may never need to be used if large enough

Fry Electronics Team

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