Reducing the “fragmentation” in the euro zone, that is to say the differences (“spreads”) between sovereign borrowing rates, is also in the interest of countries less at risk like Germany, said Fabio Panetta on Friday, Member of the Executive Board of the European Central Bank.
In mid-June, the prospect of an increase in ECB rates, intended to counter inflation, set the markets on fire, with a surge in the borrowing rates of fragile countries in the euro zone, in particular Italy, compared to that of the German “Bund” which is the reference.
The ECB decided during an exceptional meeting in mid-June to launch preparations for an “anti-fragmentation” tool to iron out these differences which hinder the proper transmission of its monetary policy decisions.
At the risk of raising criticism, in particular in Germany, where this could be perceived as disguised state funding, prohibited by the European Treaty.
But failing to engage such a tool, which will have to respect the limits of the mandate of the institute, the “least vulnerable” countries, Germany not to mention it, would benefit from “capital inflows” which would further compress the bond yields, explained Fabio Panetta in a message recorded during a European Parliament event in Brussels.
The consequence in safe countries is “too flexible financing conditions” and ultimately “too high inflation” out of phase with the course envisaged by the ECB, he continued.
At the same time, vulnerable countries would experience “capital outflows” and therefore a “rise in yields”, hence “too tight” financing conditions.
The markets would then be keen to speculate, as during the debt crisis in 2012, on the exit of a fragile country from the euro, the ECB speaking in its jargon of “self-fulfilling financial tensions”.
Thus, acting on “spreads” is “in the interest of all countries” in the euro zone, according to Fabio Panetta.
Otherwise, the euro zone risks finding itself “with a weaker and more fragmented economy”, this “inevitably resulting in a weaker exchange rate (of the euro), which is also a factor of inflation because it increases the imports, concluded a member of the executive board of the European Central Bank.
The inflation rate in the euro zone hit a new high in June, at 8.6% year on year, Eurostat announced on Friday, as the war in Ukraine stokes a spike in energy and fuel prices. feed. In Germany, the increase was 7.6% year-on-year thanks to temporary measures on purchasing power, according to the Destatis office.