OUR ECB keeps the promise made by its decision to close the markets bonds Emergency Pandemic Relief Program and the older program, which is a commitment to prevent unwanted side effects of this policy change. He invests profits from the sale of bonds of AAA-rated countries and actively buys the debt of the countries of the South, including the debt of Greece. From the beginning of June to the end of July, the bank spent 17 billion euros buying Italian, Spanish and Greek bonds, thus preventing a surge in the cost of borrowing in these countries – an undesirable side effect that was expected to lead to the end of previous bond buying programs. Especially since the closing of the bond markets soon coincided with an aggressive rise in euro interest rates by 50 basis points.

From the beginning of June to the end of July, he spent $17 billion buying Italian, Spanish and Greek bonds.

According to calculations Financial Times Based on data from the ECB, between June and July, the bank reduced the bonds of Germany, the Netherlands and France in its portfolio by a total of 18 billion euros. As Frédéric Ducrozet, head of macroeconomic research at Pitet Wealth Management, noted, “It appears that the ECB has actively reinvested almost all profits from core countries to peripheral countries.” Thus, by reinvesting the profits from the sale of bonds of those countries with the highest credit rating, the bank shows that it is determined to keep borrowing costs under control for countries such as Italy and avoid a repeat of the eurozone debt crisis. Commenting to a British newspaper, Sven Jari Sten, Goldman Sachs’ lead European affairs economist, stressed that “the degree of flexibility in reinvesting profits from the emergency program bonds has exceeded all expectations.” Introducing its plan last month, the ECB stressed that the “first line of defense” will be the particular flexibility it will have when reinvesting profits from sales of the emergency pandemic program. And, as Frédéric Ducrose notes, it is clear that the bank’s leaders are acting with the utmost flexibility and courage.

By backing over-indebted country bonds for years with the oldest bond-buying program as well as the Pandemic Emergency Response Program, ECB leaders, like many market players, saw the risk that a move to restrictive policies would widen the gap. between the strongest and weakest economies in the eurozone, that is, lead to the so-called “fragmentation” of its markets, as described by the president of the bank, Christine Lagarde. The concern also expressed itself in spread widening, ie. the difference between the yields on Italy’s 10-year bonds and the corresponding German bond, which reached 2.4 percentage points in June. It did not reach this level until the first days of the pandemic in the spring of 2020, when the eurozone was plunging into recession. But as the ECB pledged to prevent “fragmentation” of eurozone markets, the spread narrowed to around 2.1 percentage points. In addition, last month the ECB put in place a new mechanism that will be activated if bond reinvestment under the emergency program fails to keep spreads in the South under control. He will buy an unlimited number of bonds of any country that comes under market pressure. Although it has yet to use this new tool, the reinvestment of profits from the emergency program in itself shows that the bank is determined to control the borrowing costs of the countries of the South.