Yet others are clearly less ready to use any wiggle-room. “What happens with individual government bonds is typically a reflection of what may be happening politically in the country at the time,” Bundesbank chief Joachim Nagel said Friday. Wider spreads that arise in such a context “wouldn’t be an issue that would justify us concluding that the transmission of the monetary policy impulse is disrupted.”
Analysts don’t expect the ECB to pull the trigger immediately. “If you look at the criteria that they listed, France doesn’t meet many of these,” Bas van Geffen, senior macro strategist at Rabobank, told POLITICO. Similarly, Barclays said in a note to clients that it does not expect the ECB to launch the TPI even if the government collapses.
Capital Economics’ chief Europe economist Andrew Kenningham said he “would not completely rule out use of the TPI for France, but only in an extreme sell-off environment and only if France’s government appeared more stable and signed up to corrective fiscal policy.”
What about the collateral damage?
However, Kenningham stressed that “at this stage” he thinks the ECB is “much more likely to use the TPI to support other countries affected by contagion from France than to help France itself.”
In other words, the ECB might intervene should an escalation of tensions in France push up the borrowing costs of innocent bystanders who are playing nice with the Commission. As Kenningham points out, this would meet the ECB criteria of purchases being made for “jurisdictions experiencing a deterioration in financing conditions not warranted by country-specific fundamentals.”
Is any of that happening yet?
Nope. By mid-afternoon in Europe on Monday, French bonds, and French assets in general, were moving mostly in isolation from their European peers: Its benchmark 10-year bond yield was up 0.03 percentage point on the day, while those of Italy, Portugal and Greece were all following German yields downward (yields rise as prices fall). That was after Barnier appeared to give up on passing a budget through parliament. Instead, for the social security system, he has invoked a constitutional amendment (Article 49.3), which allows him to pass a budget without a vote in parliament, but which exposes him to a vote of no-confidence later this week.
(CORRECTION: An earlier version of this story incorrectly attributed a quotation.)
