The European Central Bank (ECB) intervenes to deal with the turmoil in the bond markets. To prevent government bond yields from southern euro countries from rising too much and from concerns about the sustainability of their debts, the central bank will start buying bonds in a targeted manner soon.
The difference in interest rates on, for example, German bonds and debt securities from countries such as Italy, has widened rapidly in recent days. This is in response to the ECB’s interest rate decision last week. Then it was announced that in July, for the first time since 2011, the central bank would raise its interest rates again to curb high inflation.
Investors did not seem convinced that this new ECB course does justice to intra-group differences with euro countries. After all, the fact that it will become more expensive to borrow money can more easily cause financial problems in countries in southern Europe. An emergency meeting was called at the central bank on the matter on Wednesday.
The solution that the ECB is now coming up with does not concern a new support scheme, but a “flexible” use of redemptions from a previous buying program that the ECB still wanted to reinvest until at least the end of 2024. Policymakers have further said that a new tool should be quickly devised to counteract fragmentation within the euro area.
The recent situation in the bond markets has brought back memories of the euro crisis of years ago. Then the yields on government bonds of the southern euro countries also soared and Greece even threatened to go bankrupt, because it seemed no longer able to finance its debts independently.