Eurozone emergency as another debt crisis looms

Others insist Wednesday’s announcement is a step in the right direction. In a note, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said the ECB has “drawn a thin line in the sand”, adding: “We doubt that this will be enough to stem the selling pressure observed in recent weeks, but it is start.”

It expects the central bank’s plans to design a new bond buying scheme will result in markets pricing in a more aggressive interest rate hiking path, and help to reduce spreads – the gap between borrowing costs – between Italian and German bonds.

“In short, the presence of a [new bond-buying plan] means that the ECB has more room to raise rates without spreads widening excessively,” Vistesen said.

Still, the research house expects it will take a few days to see how markets digest the news, not to mention more details expected to come from the ECB.

The emergency meeting was called less than a week after the central bank’s normal rate-setting meeting, after which investors were left disappointed with the lack of detail over when or how the ECB would intervene in government bond markets.

For the Italian government, the ECB’s policy has become an increasing source of concern and frustration. Earlier this week, Francesco Giavazzi, Draghi’s adviser, said: “The ECB is raising rates to respond to the increase in inflation with the wrong instrument.

“We don’t have inflation from demand like in the US, but instead have inflation linked to gas prices.”


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