Belgium, (Brussels Morning Newspaper) European Central Bank (ECB) head Christine Lagarde discussed the bank’s planned tool with eurozone finance ministers on Thursday.
According to sources familiar with the discussion, the tool is aimed at addressing growing spreads between EU member states’ bond yields, Reuters reported on Thursday.
Lagarder pledged to provide support to the EU’s southern members struggling with high debt, hoping to reverse trends that threaten a new debt crisis similar to the one that nearly brought down the euro some ten years ago.
Speaking at a closed meeting on Thursday, Lagarde presented ECB’s thinking behind the planned tool which is still in development, sources pointed out.
She stated that the ECB wants to fight against “fragmentation” and pointed out that the planned tool is meant to bring bond yields back to normal levels, rather than close the spreads.
One of the sources noted that Lagarde did not provide a timeframe and added that it is not clear when the ECB would launch the planned tool.
Luis de Guindos, ECB Vice President, noted at a conference in Milan earlier on Thursday that the bank plans to implement the scheme quickly.
Lagarde informed the ministers that the planned tool would activate when spreads exceeded certain thresholds, with two of the sources pointing out that she did not provide detailed information.
They added that the ECB could activate the tool if spreads grow too quickly.
Paschal Donohoe, President of the Eurogroup, pointed out at a press conference after the meeting that ministers did not talk about conditions that would trigger the new tool.
One official noted that Lagarde informed finance ministers about ECB’s plans to address fragmentation, which she sees as a serious risk. Lagarde stressed that ECB’s commitment should not be doubted.
“We have to address fragmentation risk to enable the implementation of monetary policy throughout the euro area,” she stated according to the source and added, “fragmentation risk is a serious threat to our price stability mandate.”
When talking about fragmentation, Lagarde was referring to the difference in costs of borrowing between eurozone countries.
“Doubting our commitment would be a serious mistake,” she concluded, according to the source.