“With the tightening of its monetary policy, the ECB will no longer be able to act as if the absence of fiscal union was not a problem”

Lhe European Central Bank (ECB) securities purchases were mainly used to keep interest rate spreads low and narrow (spreads) from which the States of the euro zone borrow on the financial markets. The end of purchasing programs, announced on June 9, means that the ECB will no longer be able to control sovereign rates so directly. Of course, she is committed tocounter the resurgence of fragmentation risks » following an exceptional meeting on 15 June. It will nevertheless be difficult for it to raise its shield against inflation without lowering that with which it has hitherto pushed back the risk of a sovereign debt crisis.

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Until the announced tightening of its monetary policy, the ECB could discreetly remedy one of the flaws of the euro zone: that of being a monetary zone without a fiscal union. The nineteen Member States all have the same currency, but each borrows individually.

Even if the markets are fond of sovereign debt, perceived as a safer asset, the rate conditions are, in the absence of mutual debt, unequal from one country to another: low rates for those deemed the safest , higher for the others. The gaps can become explosive, even degenerating into a sovereign debt crisis. The one that broke out in 2010 in the euro zone threatened to be fatal until Mario Draghi found the words, on July 26, 2012, promising holders of sovereign securities that the ECB would be there to buy back their securities as of need.

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His promise had been enough to tighten the spreads. Without regaining the pocket handkerchief in which they held before the financial crisis, they then continued to be contained by the purchases of securities that the ECB began to carry out effectively from 2015. The gap between the rate of Italy’s and Germany’s sovereign borrowings, for example, even during the political turmoil of 2018-2019, barely exceeded 300 basis points, quite far from the peak of 550 basis points in 2012.

Delicate arbitration

With the tightening of its monetary policy, the ECB will no longer be able to act as if the absence of fiscal union was not a problem. On June 9, at the very moment when it announced that it would put an end to its purchases of securities as of the 1er July, the spread rate fell from 197 to 215 basis points, and has been rising ever since (the 10-year Italian bond rate crossed 4% on June 13, for the first time since 2014). Still far enough from the 2012 peak but enough to cause substantial asset devaluations: mechanically, when bond rates rise, the present value of what they will yield in the future falls.

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