The ECB buys 6 billion more Spanish bonds

The European Central Bank (ECB) bought Spanish bonds for 6 billion euros during the months of June and July. The purchase of debt by the central bank of the euro zone is responsible for controlling the risk premium. The body chaired Christine Lagarde continue to rescue Sanchez and position itself as the great lifeline of Spanish debt. In exchange, moncloa continues to increase spending, despite calls for Brussels.

Spanish debt has been the second largest beneficiary of ECB purchases in recent months, ahead of Greece (1,000 million) and behind Italy (10,000 million). Sánchez benefits from the strict control of expenditure by Germany, The Netherlands there France because the ECB proceeded to withdraw the bonds of these countries to help Spain.

The eurozone monetary policy chief dumped 14 billion euros of German ‘bunds’, the 10-year bond that serves as Europe’s creditworthiness benchmark and whose difference with the rest determines premiums of risk. Of Dutch sovereign bonds, it sold 3,000 million and the production of French government bonds was 1,000 million euros.

Debt buybacks in the European periphery are part of the program PEPP, for its acronym in English, of the ECB. This is the emergency pandemic debt purchase program that Lagarde activated in March 2020 to counter the damage caused by Covid-19 in the eurozone economy.

The ECB thus fulfills its commitment to intervene if it detects distortions in the debt market and risk premia. The new anti-crisis mechanism is based on preventing the fragmentation of bonds and country risk in the European periphery. The European Central Bank proceeds to a flexible reinvestment of the maturities of the debt of the most solvent countries to divert them towards the purchase of debt from the least solvent. The operation began in early July.

Experts agree that without this measure, the risk premiums of Spain, Italy and Greece, as well as the yield required on the government bonds of these countries, would be much higher. Both yields on periphery benchmark 10-year bonds and country risks have fallen into double digits since Lagarde announced the new anti-crisis mechanism called TPI for its acronym in English.

The TPI goes through unlimited debt redemptions if the situation requires it, but with difficult conditions to receive it. The main one is that the country cannot be subject to an excessive deficit procedure or that it has not taken effective measures to correct it. The fact is that now these fiscal rules are suspended and European Commission wants to extend the suspension until 2023. Sánchez took advantage of this situation to raise the spending ceiling to a new record, against recommendations from Brussels. Of course, Germany, as the economic engine of the region and the state on which debt sales fall, opposes this decision and press hard to change it.

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