“They will have an ad hoc meeting to discuss current market conditions,” a central bank spokesman told CNBC. Borrowing costs for many governments have risen sharply in recent days. In fact, a measure known as Europe’s fear gauge – the gap between Italian and German bond yields that is widely monitored by investors – widened more than in early 2020 earlier on Wednesday. The yield on the 10-year Italian government bond also exceeded the 4% threshold earlier this week. The bond market movement, which highlights investor nervousness, has been linked to concerns that the central bank will tighten monetary policy more aggressively than previously expected. At the same time, the ECB failed to provide details last week on possible measures to support the eurozone’s heavily indebted countries, which has raised further concerns in the investment community. However, in the wake of Wednesday’s announcement, bond yields fell and the euro moved higher against the US dollar. The euro rose 0.7% to $ 1.04 in anticipation of the open market in Europe. Shares of Italian banks also rallied on the back of the announcement. Intesa Sanpaolo and Banco Bpm rose 5% in the first European trading hours. The market reaction so far suggests that some market participants expect the ECB to address concerns about financial fragmentation and indeed provide some clarity on what kind of measures it could take to support over-indebted nations. The ECB’s decision to meet on Wednesday also comes just hours before the US Federal Reserve raised interest rates. Market expectations show an increase in interest rates by 75 basis points, the largest increase since 1994.
Going up when needed?
Wednesday’s announcement was followed by a speech by one of the central bank members aimed at tackling some of the recent market turmoil over financial fragmentation. Isabel Schnabel, a member of the ECB ‘s Executive Board, said in Paris on Tuesday: “Our commitment to the euro is our tool against fragmentation. This commitment knows no bounds. this commitment “. One of the turning points in the history of the ECB took place in 2012 when former President Mario Draghi said that the central bank would do “whatever it takes” to safeguard the common currency. The ECB was also considered by many to have been significantly and timely strengthened in the aftermath of the coronavirus pandemic. Financial fragmentation is a risk for the eurozone. Although the 19 members of the euro area have different budgetary capabilities, they share the same currency. Therefore, instability in one nation can be transmitted to other euro capitals. “We will respond to new emergencies with existing and potentially new tools. These tools may again look different, with different conditions, durations and safeguards to stay firmly within our mandate. But there is no doubt that if and when “If necessary, we can and will design and develop new instruments to ensure the transmission of monetary policy and hence our primary mandate for price stability,” Schnabel said on Tuesday.
