by Balazs Koranyi and Francesco Canepa
LONDON (Reuters) – The current turmoil in euro zone bond markets, particularly in France amid uncertainty over the outcome of early legislative elections, is not disorderly, the Bank’s chief economist said on Monday European Central Bank (ECB), Philip Lane, downplaying the need for ECB intervention.
The prospect of a victory for far-right or left groups pushed the yield gap between French and German ten-year bonds on Friday to a seven-year high, above 82 basis points, which has led some analysts to speculate on possible intervention by the ECB.
The chief economist, however, declared that the latest market movements did not meet one of the main conditions for intervention by the institution, namely an unjustified and disorderly evolution of yields.
“What we are seeing in the markets is a revaluation of prices, but it is not a disordered market at the moment,” he said in an interview at the Reuters event Newsmaker at the London Stock Exchange.
He did not directly address the situation in France, but said all eurozone governments must comply with the European Union (EU) budgetary framework and engage with the European Commission.
Five ECB officials told Reuters the ECB had no plans to discuss using its emergency bond-buying program to help France.
The National Rally (RN) of Marine Le Pen, which is leading the opinion polls, promises a reduction in the retirement age and a reduction in VAT, notably to 5.5% on energy , food and gasoline.
French Economy Minister Bruno Le Maire warned on Friday that the euro zone’s second-largest economy risks experiencing a financial crisis if the far right wins elections scheduled for June 30 and July 7.
The ECB can buy unlimited quantities of bonds from a eurozone country under market pressure under its Transmission Protection Instrument (IPT), but within parameters such as fiscal rules of the EU.
Philip Lane also declared that the ECB was “fairly confident” that inflation would return to 2% at the end of next year.
However, some market participants are beginning to doubt that prices in the 20 countries sharing the euro will behave as the ECB predicts, particularly after the release of strong data on wages and inflation in recent weeks.
(Reporting by Balazs Koranyi, David Milliken, Marc Jones and Dhara Ranasinghe; written by Francesco Canepa in Frankfurt; French version Diana Mandiá, edited by Blandine Hénault)
Copyright © 2024 Thomson Reuters