The Bundesbank, the European Central Bank’s (ECB) largest shareholder, announced on Monday its terms to support new support for the eurozone’s most indebted countries, after opposing such aid at an emergency meeting last month.
ECB policymakers promised to buy more bonds from debtor countries like Italy and Spain at the emergency meeting on June 15, and as the ECB prepares to raise interest rates, they wanted to end a widening disparity between borrowing costs and Germany’s.
But Germany’s central bank governor, Joachim Nagel, who did not agree with the decision, warned on Monday about trying to decide on the correct spread between eurozone debt markets, as it would be “almost impossible” and risk rendering governments complacent, according to sources attending the meeting. About public spending.
“I would therefore be wary of using monetary policy tools to limit risk premiums, because it is nearly impossible to definitively determine whether an expanding spread is fundamentally justified,” Nagel said. Said.
Shortly after Nagel’s comments, ECB Vice-President Luis de Guindos said it was critical to avoid financial fragmentation among the 19 eurozone countries if the central bank raises interest rates to combat rising inflation. A controversial topic in Germany.
The ECB will seek to reduce the differentials in its members’ returns with funds from overdue bonds in Germany and other northern European countries, which will be used to buy more Italian, Greek, Spanish and Portuguese debt. The central bank is also working on a new tool to buy more Southern European bonds with the new money.
Sources said that as peripheral bond purchases are unlikely to be accompanied by a larger central bond purchase in the future, it is likely to leave Germany with a smaller share of the agency’s holdings.
EXCEPTIONAL CASES
Nagel shared his terms to support a new debt spread control plan.
He said such aid should come only in exceptional cases and with strictly defined conditions and duration – possibly referring to fiscally prudent countries.
Nagel added that aid should not hamper the ECB’s efforts to slow price progress or reduce pressure on governments to implement sound budgetary policies.
“Extraordinary monetary policy measures against fragmentation can only be justified in exceptional circumstances and under stringent conditions,” Nagel said. Said.
The new tool to buy more bonds from southern Europe could come with conditions such as offering debt deemed sustainable by the ECB or complying with the European Commission’s fiscal rules and economic recommendations, sources told Reuters.
In another possible concession to Germany, the sources said the ECB is likely to release cash through auctions that “pull liquidity” rather than direct bond sales that would hurt central banks like the Bundesbank.
source: Noticias
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