The European Central Bank should offer unlimited unconditional support to eurozone members facing an unjustified increase in borrowing costs, but should be careful about who is eligible for such assistance, the ECB member said. , Pierre Wunsch.
In the face of rising yields in the southern tip of Europe, which revived memories of the eurozone debt crisis a decade ago, the ECB decided this month to devise a new bond market instrument to reduce the debt cost gap while continuing to pushes with interest rate hikes to curb inflation.
“I would say there are no limits. There will be legal limits, of course, but conceptually, there should be no limits,” said the head of Belgium’s central bank.
“We do not want to have rules that are too strict, so we can not act when we want to,” he added.
In developing this instrument, the ECB should also avoid automatic activations that could tie its hands and stop it from taking action.
Instead, the ECB needs to make a qualitative assessment of the credibility of fiscal policy and provide support based on each country’s efforts to put the debt on track.
“Flexibility means we do not want to impose conditions that will prevent us from acting when there is an opportunity to act,” Wunsch said.
“I do not think that there should be automatic activations based on spreads, because spreads are related to the credibility of fiscal policy. The continuation of the regime should depend on the credibility of a country’s fiscal policy and support should not be considered permanent. “, he added.
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.