Saturday

21st Jan 2017

ECB in nuanced denial of yield cap plans

  • ECB chief Mario Draghi - holding the answer to the eurozone crisis? (Photo: World Economic Forum)

The European Central Bank has failed to outright deny that a bold plan for the bank to bring eurozone government borrowing costs is in the offing.

The Frankfurt-based bank said it was “absolutely misleading to report on decisions which have not yet been taken and also on individual views, which have not yet been discussed by the ECB’s governing council."

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

But the statement implies that the idea to put caps on bond yields - reported in Germany's Der Spiegel - may yet be debated.

According to the report, the bank is considering setting up country-by-country thresholds for sovereign bond yields, after which it would intervene by buying up the stricken states's bonds. The benchmark would be German bonds, seen as the safest in the eurozone.

The idea is extremely sensitive. It is likely to raise complaints that the ECB is overstepping its mandate. It is also set to aggravate a fear - particularly among fiscally prudent states such as Germany - that ailing eurozone countries will lose the incentive to carry out reforms.

A spokesperson for the German finance ministry was quick to criticise the idea.

Saying he was unaware of any such plans, the spokesperson added that "purely theoretically and speaking in the abstract, such an instrument would of course be very problematic."

It is "also wrong to speculate on the shape of future ECB interventions," he said, according to AFP.

Consideration by the bank on how to overcome the crisis come as the borrowing costs for Spain and Italy have in recent weeks been pushed to near unsustainable levels, with investors doubting in the longterm future of the single currency.

Some analysts have suggested that the ECB - with its theoretically limitless capacity to print money - holds to the solution to the eurozone crisis, which has lasted over two years, seen the toppling of several governments, and is now threatening core economies.

An editorial in the Financial Times Deutschland suggests that the interest capping rate idea differs from previous proposed solutions in that it offers a "sustainable" way to stem the crisis.

EU should raise own taxes, says report

A group chaired by former Italian PM and EU commissioner Mario Monti says Brexit should be used to create EU-level levies to depend less on member states contributions, and to abolish member states rebates in the EU budget.

Stakeholders' Highlights

  1. Caritas EuropaEU States to Join Pope Francis’s Appeal to Care for Migrant Children
  2. UNICEFNumber of Unaccompanied Children Arriving by sea to Italy Doubles in 2016
  3. Nordic Council of Ministers"Nordic Matters" Help Forge Closer Bonds Between the UK and the Nordic Region
  4. Computers, Privacy & Data ProtectionThe age of Intelligent Machines: join the Conference on 25-27 January 2017
  5. Martens CentreNo Better way to Lift Your Monday Blues Than to Gloss Over our Political Cartoons
  6. Dialogue PlatformThe Gulen Movement: An Islamic Response to Terror as a Global Challenge
  7. European Free AllianceMinority Rights and Autonomy are a European Normality
  8. Swedish EnterprisesHow to Create EU Competitiveness Post-Brexit? Seminar on January 24th
  9. European Jewish CongressSchulz to be Awarded the European Medal for Tolerance for his Stand Against Populism
  10. Nordic Council of Ministers"Adventures in Moominland" Kick Off Nordic Matters Festival in London
  11. PLATO15 Fully-Funded PhDs Across Europe on the Post-Crisis Legitimacy of the EU - Apply Now!
  12. Dialogue PlatformInterview: Fethullah Gulen Condemns Assassination of Russian Ambassador to Turkey