Sources say the ECB is thinking about whether or not to put a number on a bond-fighting plan.
Sintra, Portugal (Reuters) – Reuters sources say that policymakers at the European Central Bank are thinking about whether or not they should announce the size and length of their upcoming bond-buying plan. This plan is meant to lower the cost of financing for Italy and other countries with a lot of debt.
In response to a rise in bond yields that has hurt the most indebted countries the most, the ECB will announce the new tool on July 21. It will also raise interest rates for the first time in more than a decade.
According to conversations with half a dozen policymakers at the ECB’s annual forum in Sintra, Portugal, the ECB’s staff is putting together different options for policymakers. These options include how many of the details, such as firepower and length, should be made public.
Sources say that announcing a big envelope would be good because it would show investors that the ECB is serious about fighting what it calls “financial fragmentation” in the euro zone.
It would also protect the ECB in case it is accused in court of giving money to governments. This is because it would show that the ECB’s help is not a sure thing and is not the same as giving states a blank check, they said.
But this choice could go wrong if bond traders think the number is too small, the sources said. Keeping the July announcement vague would avoid this risk, but it might leave too many questions unanswered, they said.
Policymakers all agree that they should use their own judgement instead of setting numerical goals to decide when and in which markets to step in.
They also agreed that the programme should have rules, like following the recommendations of the European Commission, but they shouldn’t be too hard, as Reuters reported earlier this month.
The ECB did not want to say anything about this story.
Christine Lagarde, the president of the European Central Bank (ECB), said on Tuesday that the new tool would be “effective, proportionate, and have enough safeguards to keep member states moving toward a sound fiscal policy.”
German academics took the ECB to Germany’s highest court and the European Court of Justice over its plan to buy bonds in the past. They said that the ECB was financing governments, which is against European treaties.
The courts ruled that the ECB was doing its job as long as safeguards were in place.
