It’s give-and-take. While in two days, to fight inflation, the ECB will announce that it is in turn raising its benchmark interest rate – this will be the first increase in the cost of money in the euro zone since 2011 – negotiations between central bankers in the region are going well. Nothing has yet been decided, according to the Bloomberg agency, whose information released at the end of the morning has shaken up the expectations, hitherto very broad, according to which the ECB (which itself guided these expectations) will come out of the zero interest rate policy through an increase of “only” 25 basis points, which would bring the refinancing rate to 0.25%.
Bloomberg, quoting people familiar with the matter, reports that the Frankfurt institution, guarantor of price stability, could finally opt for a rise of 50 basis points, at the end of the negotiations between the “hawks”, supporters of a more rapid monetary tightening, and the opposing camp of the “doves”. Currently, European Central Bank President Christine Lagarde is reportedly stepping up efforts to reach an agreement on a new anti-fragmentation tool, according to the agency’s latest information.
Early elections
However, the Bundesbank, represented at the ECB by Governor Joachim Nagel, opposes the anti-fragmentation tool, which would aim to prevent too wide a spread in bond rates between the various euro zone states, attributable to a surge in the borrowing costs of the most fragile countries, such as Italy or Spain. Two weeks ago, Joachim Nagel publicly warned the central bank against any attempt to lower the borrowing costs of highly indebted southern eurozone countries. He believes the focus should be on tackling inflation, which may require more interest rate hikes than expected. As a bargaining chip, the ECB would be ready to raise the key rate by 50 basis points on Thursday to obtain the consent of the Germans on the anti-fragmentation tool.
Speculation around the implementation of such a tool in the euro zone is allowing spreads to narrow at a time when, moreover, the political crisis in Italy is back to heckle the stock market. “The odds of an early election have increased” in Italy, noted Deutsche Bank strategist Jim Reid yesterday. In this context, it had become all the more obvious for him that any information on the anti-fragmentation tool would be good news for the market which, on Thursday, will be on the lookout for the smallest details concerning the operation. (size, purpose, conditionality, sterilization method). In the meantime, the banks, major holders of debt securities, are those who benefit the most from this stock market speculation. Societe Generale, in Paris, signs one of the best performances of the day on the Cac 40, thanks to a gain of 2.5%. BNP Paribas and Crédit Agricole rose by more than 1%, as did the European Stoxx index for the sector. On the Madrid Stock Exchange, CaixaBank jumped 7%, closely followed by Banca de Sabadell and Bankinter. Unicredit earns 5% in Milan.