ECB pledges new crisis tool to help indebted Southern States
Government borrowing costs have soared on the 19-country currency bloc's periphery since the ECB unveiled plans last Thursday to raise interest rates to tame painfully high inflation.
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But the bank failed to reassure investors it would contain the rise in borrowing costs, making only a vague pledge and stoking fears it was abandoning more indebted nations, such as Italy, Spain and Greece, which have struggled for years under the weight of massive debt piles.
Reversing course just six days later, the ECB said it would direct cash to more indebted nations from debt maturing in a recently-ended 1.7 trillion euro ($1.8 trillion) pandemic support scheme and it would work on a new instrument to prevent an excessive divergence in borrowing costs.
"The Governing Council decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council," the ECB said after an extraordinary meeting.
But ECB chief Christine Lagarde also tried to temper expectations, arguing that the ECB's job is taming inflation, not helping budgets.
"We cannot surrender to fiscal dominance," Lagarde said at a forum in London. "Neither can we surrender to finance dominance; we have to deliver on our mandate."
Dutch central bank chief Klaas Knot said that policymakers instructed staff to work at an accelerated pace on the new tool, in case sending reinvestments south were not enough.
"If it will not be enough, rest assured that we stand ready," Knot told a conference.
The ECB's statement calmed markets but left many underwhelmed.
"I think essentially it is the bare minimum of what could be expected, but I also believe it's the most realistic outcome of what they could compromise today," Danske Bank economist Piet Christiansen said.
Holger Schmieding, an economist at Berenberg meanwhile argued that the ECB was merely correcting last week's mistake.
"Last Thursday, such words would probably have made a decisive and possibly lasting difference," he said. "But after the turmoil of the last few days, markets are now more nervous than before. The ECB thus faces a bigger risk that markets may test the ECB’s resolve again soon." (Reuters)
Moreover, the prospect of a new European Central Bank intervention in favor of overindebted member-states, which Frankfurt raised on Wednesday, boosted prices at Athinon Avenue and saw the benchmark cover almost half of the losses incurred during Tuesday’s selling spree. It came off a three-month low with banks and some other index heavyweights leading the way, though turnover was significantly down on Tuesday’s.
The Athens Exchange (ATHEX) general index closed at 838.94 points, adding 1.96% to Tuesday’s 822.84 points. The large-cap FTSE-25 index expanded 2.38%, ending at 2,028.26 points.
The banks index grew 2.82%, as Alpha rebounded 5.37%, National earned 2.31%, Eurobank grabbed 1.80% and Piraeus climbed 0.93%. Coca-Cola HBC improved 4.46%, OTE rose 4.26%, Motor Oil augmented 4.26% and Jumbo collected 3.33%, but GEK Terna gave up 1.98%.
In total 60 stocks posted gains, 38 suffered losses and 22 remained unchanged.
Turnover amounted to 75.8 million euros, down from Tuesday’s €115.3 million.
In Nicosia, the general index of the Cyprus Stock Exchange increased 1.53% to 71.53 points.