A decade after the euro zone crisis, is the urgency for the single currency back? After five days of strong tensions on the financial markets, with interest rates soaring, the European Central Bank (ECB) decided to intervene on Wednesday 15 June. In a very unusual way, it convened its board of governors urgently. Such a meeting at short notice had not happened since the financial panic at the start of the Covid-19 pandemic in March 2020. Without giving details, the ECB announced the immediate study of a new « instrument anti-fragmentation ».
The “fragmentation” in question, in the jargon of monetary policy, is the widening gap between the borrowing rates of Germany, the country considered the most secure financially, and those of the peripheral countries, at the forefront of which is Italy. The risk is to see the monetary union break up.
The tension, which began quietly in December 2021, has suddenly increased in recent weeks. The ten-year Italian bond rate, which was 3% at the beginning of June, rose to 4.3% on Tuesday 14 June. Its spread with the German rate jumped from 0.9 points in December 2021 to 2.5 points on Tuesday. In France, the borrowing rate rose from 0% six months ago to 2.4% on Tuesday.
This surge was exacerbated when the ECB announced on Thursday 9 June that it was going to increase its deposit rate, currently -0.5%, twice, in July and September, before probably continuing this rise of by the end of 2022. At the same time, Christine Lagarde, its chairwoman, disappointed market expectations: she let it be known that the board of governors had barely discussed the issue of fragmentation.
Market attacks
This “victory of the hawks”, nickname given to supporters of a stricter monetary policy, has opened the door to speculation against the euro zone. “We are not at all in the situation of 2012 [pendant la crise de la zone euro]. We know that the ECB will eventually act, but I am surprised that it lets things go for so long”said Andrew Kenningham of Capital Economics on Tuesday.
The objective of Wednesday’s meeting was therefore to put a stop to these market attacks. In its press release, the ECB begins by restating its commitment to defend the euro zone: “Since the beginning of the process of gradual normalization of the policy [monétaire], in December 2021, the Governing Council pledged to act against the resurgence of fragmentation risks. »
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