Luis de Guindos, Vice President of the ECB, said this morning that the ECB is working on the package of measures to combat the incorrect transmission of monetary policy that occurs when the risk premiums of certain countries in the eurozone soar. “We will see the conditions of the program”, Guindos said in his telematic intervention in the summer courses of the Menéndez Pelayo International University.
Guindos explained that he sees the fight against inflation, which implies the withdrawal of stimuli and the rise in rates, as compatible with the ECB's commitment against the fragmentation of the euro -so that all countries can finance themselves at rates relatively close to those set by the central bank - and its measures to combat it. "We reiterate our commitment against unwanted fragmentation," he insisted.
The risk premiums of Italy, Spain, Portugal and other countries shot up in early June, just after the ECB announced a rate hike of 25 points (0.25%) at its meeting on July 21 and another rise, at the same level or higher, in September. In the case of Italy, the 10-year debt yield differential went up to 250 points. In the one of Spain, touched the 140 points. Guindos explained that the ECB seeks a "reasonable risk premium", which includes concepts such as the debt spread, but also financial stability and market liquidity. "This is an economic judgment because this is not an exact science."
“In this analysis, we will be raising it; the risk premiums of ten years ago were unjustified and put the integrity of the euro at risk; now a certain dispersion is justified and what it is about is fighting against an unwanted fragmentation”.
The Vice President of the ECB has highlighted the optimism that inflation is going down and does not see at all that the much-feared stagflation is going to materialize. He has also warned banks not to be overconfident because, although the rate hike benefits them, there are trade-offs. "They must be prudent and not be left with the mirage or the short-term illusion of the rate hike," he commented.
