From Breakingviews - ECB’s crisis tool works best if it’s never used
, an EU agency that provides financial assistance to euro zone countries in difficulty in exchange for specific commitments from governments. OMT remains available, but no one wants the stigma of going to the ESM so it’s probably off the table.. Because it may be easier to tap, its presence could encourage bad fiscal behaviour by governments. Conversely, there’s also the risk other member states could block the TPI’s use by declaring their troubled counterpart out of compliance.
The ECB wants to make the tool available only to countries who have not yet lost market access, but are under threat for reasons plausibly not of their own making. Those criteria can be highly subjective and perched on the thin line between avoiding euro breakup and creating moral hazard in national capitals.
The ECB’s ambiguity is unlikely to be tested soon. Falling energy prices have bolstered growth across the European Union and reduced the chances of a recession. But the risks of future shocks from the war in Ukraine, persistent inflation or a new pandemic mean investors and policymakers remain on edge.
The euro crisis showed that countries with little resilience can topple quickly if one of their peers gets into trouble. Yet divergence and spreads are baked into the system. That leaves the ECB to stand in the gaps with whatBy promising they could save the world, central bankers hope they never have to.
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