A new EU fiscal regime could make the ECB truly independent

The ECB must be free to target inflation and prevent spreads rising without encouraging fiscal irresponsibility. A new, credible fiscal regime is needed, with a permanent EU green investment fund at its centre.

In an emergency meeting on June 15th, the European Central Bank (ECB) announced that it would introduce an ‘anti-fragmentation’ tool (although it said it needed more time to work out the details). The tool would involve the central bank buying sovereign bonds of southern European countries – especially Italy – to persuade financial markets that the ECB would act to prevent borrowing costs from spiralling out of control. Due to the size of its debts, Italy is the most serious problem, and its borrowing costs rose rapidly in June, causing a headache for central bankers. But the ECB also needs to avoid encouraging fiscal irresponsibility. If the ECB buys up Italian debt to keep yields down, a new Italian government might be encouraged to borrow more.

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Πηγή: cer.eu

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