The European Central Bank’s responsibilities have sometimes seemed to boil down to one thing in recent years: easy money. Ironically, it is the tight-money lobby that must now embrace liquidity.
A week of turmoil in bond markets has highlighted the challenge of raising interest rates without causing a debt selloff among the weakest eurozone nations. Last week, the ECB emphasized it would address this by flexibly reinvesting its maturing bond portfolio, but this isn’t nearly enough firepower. Officials were forced to call an emergency meeting Wednesday.
The ECB will “accelerate the completion of the design of a new anti-fragmentation instrument for consideration,” the central bank said after the meeting. It is a step, but not exactly a thrilling call to action.
Indeed, investors still seem to believe…
