July 21, 2024

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ECB chief economist downplays need to intervene in French bond market

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A senior European Central Bank official has dismissed the idea that it could start buying Eurozone government bonds after the announcement of a snap French parliamentary election caused a sell-off in the country’s debt.

Philip Lane, chief economist of the ECB, said: “What we are seeing is a repricing but it is not in the world of disorderly market dynamics right now”.

His comments, at a Reuters event in London, indicate that the ECB currently believes there is little reason to consider activating its relatively new, but as yet untested, emergency bond-buying powers to support Eurozone debt markets.

Borrowing costs for European governments have surged since French President Emmanuel Macron called snap parliamentary elections on June 9 after his party lost heavily in EU elections, stirring fears that this could lead to another Eurozone debt crisis.

Polls indicate Marine Le Pen’s far-right Rassemblement National could win next month’s election and a new leftwing bloc could be the main opposition party. This is raising concerns that France could go on a populist spending spree, which would push up the country’s already elevated debt levels and fuel tensions between Paris and Brussels.

Lane’s comments were backed up by ECB president Christine Lagarde.

“Price stability goes in parallel with financial stability,” Lagarde said on Monday while visiting a quantum computing research site in Massy, southwest of Paris. “We are attentive to the good functioning of financial markets, and . . . we’re continuing to be attentive, but it’s limited to that.”

Some analysts think that an intensification of the bond sell-off would force the ECB to respond. The central bank gave itself powers in 2022 to buy unlimited amounts of a Eurozone country’s bonds to counter an unwarranted sell-off, but the scheme has not been activated and…

2024-06-17 07:48:14

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