The ECB (European Central Bank) presented new measures this Wednesday (15) to contain the losses in the market that have fueled fears of a new debt crisis on the bloc’s periphery, but it seems to have disappointed some investors who were expecting something more decisive.
Yields on government bonds have soared on the periphery of the 19-nation currency bloc since the ECB last Thursday unveiled plans to raise interest rates in July and September to tame painfully high inflation that is at risk of becoming entrenched. .
The liquidation was exacerbated by the absence of any concrete plan from the ECB to limit this rise in borrowing costs, which has raised fears that the authorities are too complacent about the plight of more indebted nations like Italy, Spain and Greece.
Faced with the threat of a repeat of the debt crisis that nearly toppled the euro a decade ago, the ECB said it would be flexible in reinvesting maturing money from its recently closed 1.7 trillion euro pandemic support scheme, and that will evaluate a new instrument to be developed by its team.
“The Governing Council has decided to appoint the relevant Committees of the Eurosystem together with the ECB services to expedite the completion of the project of a new anti-fragmentation instrument for the Council’s assessment,” the ECB said at an extraordinary meeting.
Investors did not appear to be overjoyed, as they expected more decisive measures and more details.
The euro was down around 0.5% against the dollar after the ECB’s statement, while Italian yields jumped around 7 basis points.
The gap between the ten-year bonds of Italy and Germany, a key indicator, widened to 239 basis points from 224 basis points before the announcement.
“That’s what they should have said last week. Better a week later than never,” said Pictet Wealth Management economist Frederik Ducrozet.
ECB President Christine Lagarde will speak at 1:20 pm in London, in an appointment set before the monetary authority meeting.
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