The European Central Bank’s new anti-crisis tool should have the element of surprise to be effective in combating market pressure and avoiding the fragmentation of the eurozone, said former Executive Board member Lorenzo Bini Smaghi (Societe Generale).
Bini Smaghi, who is now chairman of Societe Generale, said the use of the Securities Markets program in 2010 – when he was still a member of the ECB’s executive board – initially worked because it was big and surprising.
“The ECB needs to be able to send signals to the markets that if spreads and fragmentation become interesting, it will be ready to act, but I don’t think we need to give all the details of how you will act,” he said in an interview. on Bloomberg Television at a financial conference in Aix-en-Provence, France. “You have to surprise the markets, you can’t always be too predictable.”
Jean-Claude Trichet, who headed the ECB during most of Benny Smaug’s tenure, told Bloomberg TV on Friday that the institution has a lot to do when the transmission of monetary policy is hampered by unfounded speculative activities and that markets they are wrong to bet against the eurozone.
The comments come as their successors in Frankfurt work to deliver on a promise they made at an emergency meeting in June to create a new anti-fragmentation tool. While they have a temporary title — the Transportation Protection Mechanism — there are still differences over its tactics and fundamental design, Bloomberg reported this week.
Bini Smaghi said getting the instrument right is important to ensure the ECB can continue with its rate hike plans without markets reacting in a disorderly manner. To combat record inflation, he supports the ECB’s plan for a 25 basis point hike at the July 21 meeting and said it would then likely have to pick up the pace with a 50 basis point hike in the fall.
“The ECB needs to focus on inflation — the sooner that happens, the more the environment will be right for recovery,” he said.
Source: Capital
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
