ECB to hold emergency meeting

The European Central Bank is to hold a rare unscheduled meeting on Wednesday to discuss the turmoil on Europe’s bond markets.
In a statement, the bank said: “The Governing Council will have an ad hoc meeting on Wednesday to discuss current market conditions.” The meeting is expected to start at 1000 BST, with invitations reportedly sent out on Tuesday.

The announcement follows sharp moves in bond yields across member nations after the ECB confirmed last week that it would raise rates this year to tackle inflation. In response, the spread between the yields of German bonds and those of more indebted countries, such as Italy, surged to its highest in more than two years.

The ECB rarely holds unscheduled meetings, and used the last one to announce its €1.7trn Pandemic Emergency Purchase Programme.

However, Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “We don’t expect the ECB to pull out the bazooka today. The hawks will strongly oppose this, and we quite simply doubt that the council has any grasp of what it wants to do, if anything, let alone the unanimity required to announce a new tool.”

Andrew Kenningham, chief Europe economist at Oxford Economics, said: “It would be surprising if the Bank has nothing to announce today, but seems almost certain that any statement will fall short of a detailed anti-fragmentation tool.

“The Council has a number of options. It is likely to repeat in stronger language that it will not allow further bond market fragmentation. A second possibility is for the ECB to say it will create specific anti-fragmentation tool within the coming days or weeks, but without giving details.

“The bank could earmark a pot of money which it will use to counter fragmentation rise…[or] the bank could change its rules to allow it to reinvest securities within its PEPP flexibility to counter risks which are not related to the pandemic.”

He concluded: “We would not be surprised if the council is divided over what to do and disappoints markets, in which case spreads are likely to widen further before the ECB is eventually forced to agree something on sufficient scale.”

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