Government borrowing costs have skyrocketed on the periphery of the 19-nation bloc since the ECB unveiled plans to raise interest rates last Thursday to stem high inflation, which is likely to take root.
The move was then exacerbated by the ECB’s decision not to detail its plans to curb rising borrowing costs, raising fears that political decision-makers were happy with the situation of more indebted nations such as Italy, Spain and Greece.
Faced with the threat of a repeat of the debt crisis that nearly led to the collapse of the single currency a decade ago, the ECB has shifted its course, planning a new support scheme and directing money from debt due to the scheme to debt-ridden nations. its $ 1.7 trillion pandemic support, which ended recently.
At a conference on Wednesday, the head of the Dutch central bank, Klaas Knot, said that political decision-makers had called on ECB staff to work at a fast pace on the new instrument. “We don’t know if it will be enough, it depends on how the markets will react. But if it won’t be enough, rest assured we are ready,” Knot said.
His Slovak counterpart, Peter Kazimir, said it was still “premature” to discuss details of what a new instrument would look like.
Investors welcomed the ECB’s intentions, but were still disappointed by the lack of details and the lack of firm commitment.
“I think that’s basically the minimum we could expect, but I also think it’s the most realistic result of what could be compromised today,” said Danske Bank economist Piet Christiansen.
The euro fell about 0.7% against the dollar after the ECB statement, while Italian yields jumped about 7 basis points.
Meanwhile, the 10-year spread between Italian and German bonds, a key indicator, rose to 241 in the immediate aftermath of the announcement, but then returned to 231, indicating confidence that the ECB will act more firmly, perhaps at the monetary policy meeting. from July 21, when it is almost certain that rates will rise for the first time in more than a decade.
The ECB’s move comes on the same day that the US Federal Reserve is expected to raise interest rates.
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