According to chief economist Philip Lane, the ECB currently sees no reason to buy bonds to support France in light of the recent stock market turbulence. In his view, the price fluctuations do not meet the necessary conditions, as the chief economist of the European Central Bank (ECB) said in an interview on the London Stock Exchange on Monday.
Lane also expressed confidence that the ECB will reach its inflation target of 2.0 percent in 2025, despite the recent increase in prices in the eurozone. “There is a fundamental difference between a revaluation of fundamentals in the markets versus disorderly dynamics,” Lane said. With such dynamics, investors sell securities because others are doing the same and they don’t want to be the last. “What we are seeing in the financial market is a revaluation, but it does not fall into the world of disorderly markets at the moment,” he said.
Although he did not directly address the political situation in France, he noted that all governments in Europe must comply with the European Union’s fiscal framework and engage in dialogue with the European Commission. According to insiders, the ECB’s euro watchdogs have no plans to discuss emergency purchases of French government bonds.
The ECB has a bond-buying instrument called the Transmission Protection Instrument (TPI) that can be used to support countries in distress. It can be activated to counteract unjustified, disorderly market dynamics, but it is also subject to certain conditions.
Investors sold French securities on a large scale ahead of the new elections. According to a survey, the elections could give the eurosceptic and far-right Rassemblement National (RN) a majority. The risk premium that investors demand for French government bonds rose to its highest level in more than four years at the end of the week. France’s Finance Minister Bruno Le Maire had warned that the country could slide into a financial crisis if extreme parties win the elections on June 30 and a week later, on July 7.
The chief economist remained tight-lipped about how often the ECB might cut interest rates this year. However, he noted that the central bank would not have all the information at its upcoming meeting on July 18. One driver of inflation is inflation in the services sector. “I think this is an example of the fact that we have to see that the momentum is slowing down in the second half of the year.” Services prices rose by 4.1 percent in May, after the price increase in April was still at 3.7 percent.