A divided ECB prepares to help southern Europe and avoid a new debt crisis

European Central Bank ,B.C) will face in the next month difficult internal negotiations to agree on a “Antifragmentation Mechanism”That is, a support system that includes an increase in the yield required for the loan of the repo Greece, Italy or Spain -and its risk premium-, and to explain the 19 members of the Eurozone, both from the north and from the south.

Following the immediate meeting on this Wednesday, government council has announced that it will reinvest profits from loans purchased under the Epidemic Emergency Program (PEPP) New purchase of debt of some countriesThose in the South, to try to contain the increase in their risk premiums that have skyrocketed over the past week.

The Council – the highest governing body composed of the members of the Executive Committee of the ECB and the governors of all national central banks, including Pablo Hernandez de Coso For him bank of spain– has also announced that it has “directed the relevant Eurosystem committees and ECB services to expedite the finalization of the design of a new anti-fragmentation instrument for consideration by the Governing Council”. both ads closed yesterday Spanish risk premium fell 10% to 124 points basics and interest The ten-year bond was reduced to 2,87%

now him ECB technical staff -Including experts from national central banks which is in second place Frankfurt- a first written offer And then share it with the members of the Governing Council so they can contribute and work on the draft.

next meeting of the governing council will celebrate Wednesday June 22, But since this is a meeting that is not about monetary policy, it is not expected that the matter will be analyzed, as confirmed by ECB sources to EL Mundo. Thursday 23 Council will meet again In another meeting in which general issues will be addressed. This is not a monetary policy conference, but it is possible that Council members will comment on progress made in this mechanism if they receive the first resolution.

main conflict to come into conversation to be in ConditionBecause countries that have healthy public finances—acceptable levels of public debt and public deficits—that present low levels of risk and, therefore, have low risk premiums, such as countries in Northern Europe, will be able to creating problems for the ECB to buy loans only from southern countries to keep their yields artificially low and to cover their risk premiums, when these are passed Follow up without submitting a tax consolidation plan -such as Spain- and maintain comprehensive public policies that stops them Narrow down your budget gap.

According to Eurostat data, in 2021, Denmark and Luxembourg closed the year with Budget Surplus (2.3% of GDP and 0.9%) You ten economies European companies managed to reduce their Loss less than 3% -The level recommended by the Sustainability and Development Treaty which is inactive-: Sweden (-0.2%), Lithuania (-1%), Cyprus (-1.7%), Poland and Ireland (-1.9%), Estonia (-2.4%) , Netherlands (-2.5%), Finland (-2.6%), Portugal (-2.8%) and Croatia (-2.9%).

But others, all located in southern Europe, recorded larger fiscal imbalance as Malta (-8%), Greece (-7,4%), Italy (-7,2%), Romania (-7,1%), Spain (-6,9%) y Hungara (-6.8%). Many of these Mediterranean countries also top the rankings. public debt more than gross domestic product: Greece at the end of last year was 193.3%, followed by Italy (150.8%), Portugal (127.4%) and Spain (118.4%); While the countries with the most controlled debt are Estonia (18.1%), Luxembourg (24.4%), Bulgaria (25.1%), Sweden (36.7%) and Denmark (36.7%). An important difference that can also be seen in the risk premium.

As this paper has already pointed out, the ECB is considering certain conditional clause for the beneficiaries of the program, due to which a War Between the potential favors (who will seek the lowest possible bet) and those who keep their finances healthy and their risk premium (who will seek guarantees), in fact many experts agree that compromise will be difficult and that may not be before the next meeting of monetary policy 21 July -If there are no new emergency appointments-.

On that day, if an exchange of documents has almost reached a final version, the Council may agree on a design for the mechanism and announce it at a subsequent press conference, but there is also the possibility that there is no such agreement You Tool is built to wait, what could have happened Re-tighten the gap between passes.

difficult settlement

Jack Allen-Reynolds, Senior European Economist at British Consultancy capital economicsbelieve that”There is no guarantee that they will reach an immediate consensus, so it would not be surprising if the spread widens a bit further before being forced to act. In fact, there is a Wide variety of design options of a tool to combat fragmentation and Council’s views differ Importantly what is appropriate.

“The details of the mechanism are likely to emerge in the coming days and weeks as the most important questions to be answered are, in our opinion: Condition -Whether the countries from which sovereign bonds will be purchased must meet certain conditions, for example, to comply with the Stability and Development Treaty?-; Shape -How much amount will the ECB be allowed to buy through this instrument?-; Expiration -What is the maturity of the bond which the ECB will buy?-; And this purchase breakdown -Will the ECB have margin to buy bonds only in certain jurisdictions?-“, Experts Eng,

There are already some examples for conditional devices: Unlimited Public Debt Purchase Program (OMT) what Mario Draghi active n September 2012, This mechanism was never implemented because none of the countries requested it, but its existence served to solve the problem of market perception.

An additional issue that the ECB will have to evaluate when defining its new instrument is validitySince nearby Germany, For example, this type of operation of the continent’s highest monetary policy body has already been taken to court. Exceeding the mandate of the ECBViolation of the powers of the states and even Violation of restrictions on budget funding Passed.

Victor Alvargonzálezfounding partner of Nextep FinanceI gestured to see you this morning”Legally too complicated to buy bonds only from the South“, pointing to potential problems that this measure could face in national courts.

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