ECB’s Stournaras: Anti-Fragmentation Tool Might Never Actually Need to Be Used

11 July 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s new anti-fragmentation tool might never require actual deployment, ECB Governing Council member Yannis Stournaras said on Saturday.

Speaking to Bloomberg on the margins of a conference in France, Stournaras, who heads the Bank of Greece, said the new instrument will be ready by the next Governing Council meeting on July 21.

‘It's a very good debate in a very good spirit and good cooperation’, he said. ‘I'm sure that at the end of the day we're going to have a consensual efficient solution.’

‘Yes, I believe that there is a lot of truth in the idea that if we convince markets that this is going to be a strong tool, we might not meet it at the end of the day’, he said. ‘We'll have it on the shelf. And this is the good scenario.’

Stournaras said that if markets considered the new instrument ‘like a whatever-it-takes tool, I think there's a very high probability that it will not be needed.’

In the event of ‘negative surprises on the energy front, we might have recession next year’, he said, in which case the ECB would ‘consider our position again’ with respect to interest rate hikes. ‘As I said, we’re data driven, we’re not dogmatic, to put it this way.’

‘…to be clear, yes, there are stagflationary winds, but we don't have stagflation yet in Europe’, he said.

In a speech at the same event on Sunday, Stournaras said that one effect of Russian military aggression was that globalisation was ‘reversing.’

‘The result is a slowdown in the European and the global economy and rising prices and interest rates’, he said. ‘As far as the EU economy is concerned, a direct effect is higher inflationary pressures persisting for much longer than previously expected.’

‘Soaring energy and other commodity prices, as well as the actions necessary to meet the ambitious green transition targets set by the EU, could give rise to pressures for nominal wage increases in order to protect the purchasing power of household incomes’, he said. ‘This could lead to an entrenchment of inflationary pressures and expectations, which, together with heightened uncertainty, are the most important short-term threats to the recovery of the European economy.’

‘Against this background, the main challenge for economic policy currently is how to prevent a temporary inflation from becoming structural, which would create stagflationary pressures in the European economy, and how to mitigate the negative effects on households’ purchasing power and on corporate profitability without jeopardising the ongoing economic recovery’, he said.