by Francesco Guarascio
LUXEMBOURG, June 16 (Reuters) – Eurozone finance ministers on Thursday called for a return to fiscal discipline to help the European Central Bank (ECB) limit the risk of a renewed debt crisis, in a context dominated by high inflation, slowing growth and market tensions.
During their monthly meeting in Luxembourg, the President of the ECB, Christine Lagarde, explained the announcement the day before by the Frankfurt institution of the development of a new tool aimed at preventing “fragmentation” of the euro zone by supporting the most indebted countries.
The term fragmentation is used in reference to the risk of a widening of the spreads between the yields of the government bonds of the member countries, to the detriment of the most indebted.
“All member states need to return to sound public finances, we need to reduce our deficits and we need a reliable path to debt reduction,” German Minister Christian Lindner told reporters upon his arrival in the meeting.
Yields on government bonds in the so-called “peripheral” countries of the euro zone rose sharply after the announcement last Thursday by the ECB of its intention to raise its interest rates in July and then in September to curb inflation.
But Christian Lindner minimized the risk of fragmentation caused by the widening of “spreads”, the yield differences between the bonds issued by his country and those of other heavily indebted states, such as Italy.
“We are seeing some rise in spreads but there is no reason to be worried,” he assured.
His Austrian counterpart, Magnus Brunner, however, disagreed. “We are very worried” about the spreads and the risks of fragmentation, he said, before proposing a solution close to that advocated by Christian Lindner.
“Get your budgets in order,” he told member states, adding that returning to fiscal discipline would allow the ECB to be more effective in preventing fragmentation.
“The rules must be the same for all the Member States”, added the Austrian minister, a sentence which can be perceived as an implicit criticism of the will of the ECB to adapt its action to the situation of the most fragile countries.
Christine Lagarde essentially took up before the ministers the press release published Wednesday by the ECB in an attempt to ease tensions on the interest rate markets, we learned from an official source close to the debates, without further details.
Dutch Finance Minister Sigrid Kaag told reporters that the ECB had sent “an important signal” by convening an extraordinary meeting of its Governing Council on Wednesday to discuss the risk of fragmentation.
“The period is not easy”, she added while also stressing the importance of budgetary stability and the fight against inflation.
His Spanish counterpart, Nadia Calviño, welcomed the ECB’s announcement as an “effective” initiative and added that the central bank and governments were united in their determination to ensure the solidity of the euro zone.
(Report Francesco Guarascio, French version Marc Angrand)