Eurogroup: Calviño and Gentiloni applaud the ECB’s reaction to the rise in risk premiums | Economy

The intervention of the European Central Bank (ECB), which has promised to speed up the creation of a mechanism to stop future sovereign debt crises, has been very well received by some of the top economic officials in the euro zone. “Good news”, has been the expression used by the Spanish First Vice President and Minister of Economy, Nadia Calviño, at the entrance of the Eurogroup, this Thursday in Luxembourg. “We believe that the ECB’s intention to address the risk of fragmentation of monetary policy is very important,” declared the European Commissioner for the Economy, Paolo Gentiloni, upon arrival, a position that he maintained upon leaving. “And I think this was widely understood by everyone,” he added.

The Italian commissioner, however, has clarified that this is not enough for the current situation. Gentiloni has been blunt in stating that States cannot trust that monetary policy will solve all problems and that it is also necessary to commit to fiscal consolidation.

This Wednesday the Governing Council of the ECB met urgently to meet the escalation of the risk premiums of countries such as Greece, Italy or Spain once it has become clear that Frankfurt is going to start raising interest rates. The meeting gave rise to the commitment that the highest monetary authority in the euro zone was going to step on the accelerator to create a mechanism that would intervene in the capital markets, preventing these differentials between the return required by investors for 10-year German bonds and those of other countries such as Italy or Spain, the so-called risk premium, will not skyrocket. A day earlier, the yield on Greek debt had exceeded 4.5%; that of Italy, 4%; and that of Portugal, 3%. In Spain it rose to 3%, the maximum since 2014.

This is the first step towards the so-called financial fragmentation of the euro zone, in which the profitability requirements for some countries and others are greatly increased, and also for companies and banks based on their nationality, which becomes a serious problem in a single market with a single currency, since it greatly hampers the competitiveness of the companies and States concerned. Hence, Calviño has applauded the step taken by the body chaired by Christine Lagarde: “There is a clear message from the European Central Bank and all institutions, a strong commitment to ensure the resilience and strength of the eurozone and avoid episodes of fragmentation in the European market”. The vice president added that she expected a similar assessment from her 18 colleagues, the finance ministers of the euro area, gathered in the Eurogroup.

The reaction of his German counterpart, Christian Lindner, on the other hand, has been more restrained. Pointed out from day one as a hawk unfriendly to the heterodox policies of the ECB in recent times, he has declared: “It is clear that in Europe we remain united in the economic and monetary union, which is stable and solid. The economic and monetary union is stable and solid. There is no need for anyone to freak out just because individual risk premium spreads are ever slightly higher than they were a few months ago.” Like Gentiloni, he has called for fiscal prudence.

The announcement made by the ECB this Wednesday has subtracted almost all the prominence from the frustrated attempt to revitalize the Banking Union, something that has been confirmed in this Eurogroup. The efforts of the chairman of this body, the Irishman Pascal Donohoe, to establish at least one work plan that would move slowly towards a common deposit fund has once again collided with the position of Germany and Italy, which are in antagonistic positions. The former resists this instrument being joint and the latter does not accept the Berlin conditions to at least take some steps in that direction.

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On this scenario, the only thing that the finance ministers have achieved is to ask the European Commission to make a proposal to harmonize the regulations on bank liquidations. The current standard, from 2014, has shown that it is not adapted to small and medium-sized entities, as Gentiloni has admitted, so it needs an update.