Sources say the ECB is weighing whether to put a number on its anti-bond plan

A symphony of light made up of bars, lines and circles in blue and yellow, in the colors of the European Union, lights up the south facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 30, 2021. REUTERS/Wolfgang Ratte

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  • Clarifying the size of the new program has its pros and cons
  • Policy makers agree on the need for terms, and good judgment

CINTRA, Portugal, June 29 (Reuters) – European Central Bank policymakers are considering whether to announce the size and duration of an upcoming bond-buying plan, designed to reduce financing costs for Italy and other highly indebted countries, and sources. to Reuters.

The European Central Bank is due to announce the new instrument on July 21, along with its first rate hike in more than a decade, in response to rising bond yields that have hit the most indebted countries the most.

ECB staff are preparing various options for policymakers, including how many of its details, such as firepower and duration, should be made public, according to talks with half a dozen policymakers at the European Central Bank’s annual forum in Sintra, Portugal.

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The sources said the positives of announcing a big envelope would include calming investors’ minds about the European Central Bank’s commitment to fight what it calls financial fragmentation in the euro zone.

They added that it would also put the European Central Bank on the safe side in the event that it could be accused in courts of financing governments because it would appear that its intervention is conditional and does not amount to a blank check for countries.

However, sources indicated that this option could backfire if bond traders consider the number too small. They added that keeping the July announcement vague would avoid this risk but could leave many questions unanswered.

Policy makers generally agree that they should exercise judgment about when to intervene and markets, rather than setting numerical goals.

They also agreed that the program should come with conditions, such as compliance with European Commission recommendations, but these should not be too onerous, as Reuters reported earlier this month.

An ECB spokesperson declined to comment for this story.

European Central Bank President Christine Lagarde said on Tuesday that the new instrument would be “effective … proportionate and contain sufficient guarantees to maintain the momentum of member states towards sound fiscal policy.”

The European Central Bank was taken to Germany’s highest court and to the European Court of Justice over its earlier scheme to buy bonds by German academics who accused it of financing governments, something prohibited by European treaties.

The courts said the ECB acted within its powers as long as the guarantees were in place.

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(Covering) By Francesco Canepa and Palaz Curani in Sintra, Portugal Editing by Matthew Luis

Our Standards: Thomson Reuters Trust Principles.

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