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By G. Angelis
Given that the eurozone economy will not return to pre-COVID-19 levels before … 2023, the role of the ECB is adjusted to cover a “burning” point in the eurozone’s debt problems. and its refinancing.
Philip Lane, chief economist at the ECB, explained in a text published on his ECB blog on May 1 that the role of the ECB is no longer just to guarantee price stability, but must expand, and it is already doing so. partly to guarantee the stability of the debt prices of the member states of the eurozone in the face of the great instability caused by the crisis. I could add “the lack of homogeneity in the attitude of European governments”, but it avoids it.
This “position” of Lane, which is essentially the starting line for the ECB’s position, is, at first reading, a direct rebuttal of Lagarde’s regrettable relatively recent statement that it is not the ECB’s job to “fix” spreads, that is, the cost of refinancing. of the Member States of the euro zone.
At second reading, however, it means that central bankers in Frankfurt see the ECB’s role in this area as the most essential, given that inflation risk remains lost in the distant future. The ECB has already moved in this direction with the launch of the “Emergency QE” in parallel with the QE of last September, and purchases of government and corporate debt are growing monthly, especially in countries with problems such as. Italy.
It should be noted that if the ECB markets had not intervened, the spread and yields on Italian bonds would have already reached “red”.
Furthermore, Fitch downgraded Italian debt ten days ago, sending it to an evaluation level that differs by only one level of the grade without investment, like the Greek. This pressure is expected to increase further as Moody’s and S&P will announce their own assessments of Italian debt in the coming days.
Philip Lane’s “text” of explanations comes just 24 hours before these evaluations to avoid further “surprises”, assuring markets that the ECB will not allow anyone to “drown” on its debt until the eurozone economies return normal conditions “, which places in … 2023.
In other words, until then, the ECB will buy as much debt as necessary to block the eurozone economy.
Those who supervise and decode the verbal interventions of the members of the Executive Board of the ECB, understand after Mr. Lane’s intervention that what happened to Greece, that is, the exceptional acceptance of their bonds without investment grade (exemption ), as well as the ECB’s decision to accept all corporate bonds issued as an investment grade in the “extraordinary QE” market (even if it was subsequently lost) is not the first example of how it is preparing to act for the Eurozone. ECB until 2023, at least …
Debt consolidation of debt securities involves at least two interventions, expanding the volume of purchases (of extraordinary QE) while expanding the composition of the securities you will buy.
How far can this go? Mr. Lane, correcting Ms. Lagarde, explains in his May Day message that he will go as far as necessary to guarantee the stability of the returns, that is, to ensure the refinancing of the debt in terms that are not conducive saving the euro economy.
