Anleihen: Letzte Rettung EZB: Mit umstrittenen Mitteln gegen eine neue Euro-Krise

Many Euro countries have fallen into the French debt crisis, from Italy to Spain, with investors demanding higher risk premiums compared to two weeks ago. As a result, the prices of government bonds are falling and returns are increasing. However, government bonds still enjoy demand. The shock from France has laid bare the rift in the Eurozone.

Pessimists even fear a new Euro crisis. Optimists, on the other hand, are betting on the disciplined power of the markets and the European Central Bank's willingness to take action, including an untested and controversial bond-buying program if necessary. "Many assumed the ECB could keep raising interest rates and markets would just endure it," says Tomasz Wieladek, a strategist at T. Rowe Price.

"That was a clear miscalculation." The sharp rise in yields and the sudden increase in risk premiums have fundamentally changed the situation, "including for the ECB." Central bank leaders have reacted. ECB President Christine Lagarde subtly discouraged expectations that the benchmark interest rate could rise from the current 2.5% soon at the EU Parliament in early October.

Opinion leader Isabel Schnabel, not usually eager for higher interest rates, changed her mind. Wieladek believes more specific expectation management is necessary: "Markets expect a long-term interest rate above three percent to be the new normal," he says. "The ECB should do more against these unrealistic interest rate expectations in the coming years."

Will the ECB start buying government bonds again? The considerations have long since gone further. A renewed round of bond purchases by the ECB, which ended in 2024 after a decade of expansionary monetary policy, would slow down the rise in bond yields. However, direct intervention by the ECB is legally problematic. Eurozone central banks still hold government bonds worth nearly 3.7 trillion euros, with the largest holding at over five trillion euros.

The ECB has been allowing its holdings to lapse without replacement for several years. This is gradually melting its holdings. The ECB could slow or completely halt the reduction of its holdings. For this, the central bankers would need to agree on new bond purchases together. Free funds from bonds reaching the end of their term would then be reinvested, possibly entirely or partially in French government bonds, according to some experts' calculations.

Former ECB Director Lorenzo Bini Smaghi called for an immediate halt to the balance reduction, describing it as "aggravating the imbalance between supply and demand in the bond market and driving long-term yields even higher." Former economic and monetary policy expert Volker Wieland disagrees, arguing that higher sovereign yields would give the indebted Euro countries an excuse and less incentive to reduce their debts and deficits.

"Instead, they would shift higher bond yields onto the ECB's inaction," Barclays Chief Economist Christian Keller doubts a policy change, as it would contradict the ECB's intentions to reduce its holdings. Wieladek, however, does not see this as surprising if Lagarde hints at this possibility. He even believes first steps may be feasible by the end of October.

While the ECB has always supported all Euro countries with its bond purchases, targeted support for individual countries may be necessary in a new Euro crisis. This is actually prohibited for the ECB, but it has empowered itself to buy bonds from a Euro country in distress without limit. Four years ago, the ECB introduced a rescue buying program called TPI, originally out of concern for Italy.

TPI stands for "Transmission Protection Instrument." It may only be used if the affected country is basically victimized by market turmoil and does not itself cause the yield increase. This is to avoid legal objections. France's central bank chief Emmanuel Moulin has stressed that the conditions are not met at the moment. Experts believe the activation of TPI for France is excluded as long as the government does not get its debt problems under control.

Currently, it looks that way. Other Euro countries could benefit from help if the French crisis spreads further, according to Barclays Chief Economist Keller. Economists at UBS believe the ECB Council would only consider activating TPI if financial conditions deteriorate significantly or if there is evidence of broader contagion in the Euro area.

However, after four years of fiscal consolidation, Italian government debt projections have been raised by 0.8 percentage points to 3.4% and 3.2% for 2027 and 2028, respectively, without breaching the EU debt rules. This would be a violation of the debt rules only through the trick of excluding investment in defense and energy infrastructure from the deficit calculation.

An activation of TPI would put the ECB at the limits of its mandate to ensure price and financial stability and would likely end up in court. As of mid-2024, German Finance Minister Christian Lindner (FDP) expressed dissatisfaction with the ECB's practice of letting bonds lapse without replacing them with new ones.