The European Central Bank’s (ECB) ‘mysterious’ new anti-crisis tool will be activated if the difference (spread) between interest rates on sovereign debt of various countries of the bloc exceeds certain limits, said monetary authority President Christine Lagarde, at a meeting with finance ministers this Thursday in Luxembourg , promoted by Bloomberg.
According to the news agency, citing people with knowledge of the subject, Lagarde explained to ministers that the new tool is being developed with the intention of preventing irrational market movements from putting pressure on some eurozone states.
According to the same sources, the ECB President said that the new tool could be activated if the yield spreads of sovereign debt of various countries exceed certain limits or if the market moves beyond a certain speed. However, Lagarde did not specify whether these restrictions would be made public. So far, several economists and analysts point out that the ECB has determined that the “spread” between Italy’s and Germany’s 10-year debt cannot exceed 250 basis points. From now on, they say, the ECB will begin to intervene in the market. And the emergency meeting of the ECB Governing Council on Wednesday took place just at the moment when the spread between Italy and Germany was very close to 250 points.
After Wednesday’s meeting, Lagarde stressed that the new tool is designed to avoid “fragmentation” – where the costs of financing the eurozone’s weakest economies are much higher than those of stronger economies.
This Thursday, the spread between German and Italian yields narrowed by 13.7 basis points, Italian 10-year interest rates fell by 6.5 points, and bond rates rose by 7.2 points. The spread between the debt yields of these two countries is now 202.8 points.
