The president of Federal Bank, Joachim Nagelwarned the European Central Bank (BCE) of the danger that the organization faces if it decides to implement its new mechanism to rescue the risk premiums of the peripheral countries of the eurozone, which will have harsh conditions, as reported by OKDIARIO.
Nagel asks the ECB to be “cautious” when intervening in the market to support the financing of the “weakest nations”, according to the speech of the person in charge of monetary policy Germany sent for an event in Frankfurt. The Bundesbank understands that the body chaired by Christine Lagarde It should only act in “exceptional circumstances and under strictly defined conditions”.
The German central bank thus shows itself against unceremoniously supporting peripheral countries, mainly spain, Italia y Greece because he understands that it is “practically impossible” to establish whether or not a broader distribution among the members of the eurozone is justified.
“I would warn against the use of monetary policy instruments to limit risk premiums. One can easily find oneself in a desperate situation”, reads the speech released by Bloomberg.
The fact is that the risk premium and the return on the 10-year Spanish bond has fallen to double digits since the ECB announced the creation of the anti-crisis mechanism, of which it has already launched a new purchase of sovereign debt. The central bank of the euro zone will study this month what will be the concrete measures to avoid fragmentation.
For Nagel, Lagarde must clearly justify three factors. First, that the country risks were unjustified and that caused excesses in the financial market. Second, that the debt situation damaged the single market abroad. And, third, that the situation of risk premiums limited the potential of the ECB to preserve the stability of the euro area.
In addition, the head of the Bundesbank insisted in his speech that the activation of the mechanism must be “strictly temporary” and that Lagarde should focus on the work of the previous president of the ECB, Mario Draghiwith its program of Direct Monetary Transactions.
Nagel’s words will not fall on deaf ears because they are the most aggressive pronounced to date on the anti-crisis mechanism of a highly relevant member of the Governing Council of the ECB. “Central banks must not get carried away by what are often very short-lived developments in the financial market,” he stressed.
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