The ECB’s Toxic Bond-Purchase Program
It is unclear why the European Central Bank has introduced a new asset-purchase instrument instead of using its existing Outright Monetary Transactions facility. By shielding countries from both market forces and political commitments, the Transmission Protection Instrument risks destabilizing European monetary union.
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BERLIN – With eurozone inflation rising rapidly, the European Central Bank recently increased its benchmark interest rate by 50 basis points and introduced a new asset-purchase program – the Transmission Protection Instrument (TPI) – aimed at limiting yield differentials between member states’ bonds. But the ECB’s latest anti-fragmentation tool risks destabilizing the single currency.