The southern members of the euro zone are hit hard by the end of bond purchases and the forthcoming turnaround in interest rates. In order to help countries with high national debt, the European Central Bank wants to flexibly reinvest bonds from the controversial PEPP purchase program. And she's thinking about developing more tools.
In future, the ECB intends to give particular support to heavily indebted euro countries when reinvesting the funds from expiring bonds. The European Central Bank (ECB) announced after a special meeting of the ECB Council that the ECB Council had decided to be flexible in the forthcoming reinvestment of the funds from the PEPP crisis bond purchase program worth billions. In addition, it was decided to task relevant committees with speeding up the completion of a new tool against divergence in eurozone government bond yields.
Yields on debt securities in euro countries have recently risen sharply, those in southern countries particularly sharply. Countries like Italy, which are already plagued by high levels of debt, are coming under even more pressure because their financing costs are rising.
The yield differences - the so-called spreads - between the government bonds of the southern European countries and Germany widened considerably. ECB President Christine Lagarde had already promised that the central bank would use existing instruments or new instruments if necessary. Under PEPP, the ECB bought bonds from the market for 1.7 trillion euros and intends to reinvest repayments until further notice. Lagarde emphasized flexibility in reinvesting in jurisdictions and maturities.
The PEPP pandemic purchase program expired at the end of March. At that time, the ECB ended the net bond purchases, which were always controversial because of the distorting effects on the financial system. Banking house Société Generale estimates that the ECB will receive around 300 billion euros over the coming year from maturing bonds it has purchased under the PEPP.