The European Central Bank (ECB) is working on the package of measures to avoid a debt crisis, which includes the reinvestment of part of the stimuli injected into the system so far and the design of an anti-fragmentation program for the peripheral countries of the euro, with Spain among them. "We will see and define the conditions of the program," explained yesterday Luis de Guindos, vice president of the BCE, in connection with the summer courses at the Menéndez Pelayo International University.
The conditionality will not be as severe as that of the OMT program designed by the ECB in 2014, to which no country accepted, nor as lax as the APP launched in 2015 to combat deflation, or the PEPP, to fight against effects of the pandemic. These two programs were not launched to help specific countries and therefore did not have any conditionality. Now, predictably, they will have it, but it will not be very demanding.
In his speech yesterday, Guindos explained that he sees the fight against inflation, which implies the withdrawal of stimuli and the rise in interest rates, as being compatible with the ECB's commitment against the fragmentation of the euro 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 soared 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.
Finally, Guindos explained that the ECB seeks to have 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."
