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.
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.