Christine Lagarde is leading the European Central Bank during a tumultuous period.
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- The ECB has said it will speed up the creation of a new crisis-fighting tool that is aimed at cooling the pressure on eurozone bond yields.
- The emergency meeting came after Italian borrowing costs shot higher in a worrying echo of the eurozone crisis of the early 2010s.
- Last week, the ECB pledged to raise interest rates in July but said little about how it would support vulnerable member states.
The European Central Bank said on Wednesday that it will speed up the creation of new anti-crisis measures aimed at tackling a surge in eurozone bond yields that has evoked memories of the sovereign debt crisis a decade ago.
After a three-hour emergency meeting, the ECB’s governing council said it will “accelerate the completion of the design of a new anti-fragmentation instrument” aimed at cooling the pressure on countries with high levels of debt.
It also said it would be flexible in reinvesting the proceeds of bonds maturing in its pandemic-era purchase programme, as it sought to calm financial markets.
“The pandemic has left lasting vulnerabilities in the euro area economy, which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions,” the governing council said in the statement.
The euro initially dropped after the news and was last up 0.2% at $1.0435 against the dollar, having touched an earlier session high of $1.0507.
Wednesday’s emergency meeting came after borrowing costs for some of the 19-member eurozone’s more indebted members shot higher, raising uncomfortable memories of the eurozone crisis of the early 2010s when countries such as Spain, Italy and Greece struggled to pay their debts.
The meeting took place than a week after the ECB held its latest scheduled vote on monetary policy. At the meeting, the central bank pledged to raise interest rates by 25 basis points in July and strongly hinted at a 50 basis point hike in September. It also said it would end its bond-buying program.
However, the meeting disappointed investors because it gave little detail on how the ECB would manage the possibility that borrowing costs for highly indebted countries shoot up to dangerous levels.
The yield on the 10-year Italian government bond breached 4% for the first time since 2014 earlier this week. That took the spread between Italian and German 10-year bond yields to a high of 2.53 percentage points, its widest level since the onset of the coronavirus pandemic in April 2020.
“Policymakers are taking the threat of rising peripheral yields more seriously than they were last Thursday at their regular policy meeting,” said Andrew Kenningham, chief Europe economist at consultancy Capital Economics.
