ECB publishes Transmission Protection Instrument guidance

The ECB has released a press release on the Transmission Protection Instrument (TPI). Read it here.

Highlights:

• Can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area
• Will purchase " in jurisdictions experiencing a deterioration in financing conditions not warranted by country-specific fundamentals"
• Will buy securities with maturities of 1 to 10 years
• A decision by the Governing Council to activate the TPI will be based on a comprehensive assessment of market and transmission indicators
• Purchases would be terminated either upon a durable improvement in transmission, or based on an assessment that persistent tensions are due to country fundamentals
• Compliance Compliance Compliance is a key level of financial oversight and regulation in finance, banking, and investing. These measures refer to rules or orders set down by a government regulator or independent authority to help police financial service or processing of transactions. Finance is governed by a set of established guidelines or specifications. Regulated markets all adhere to some authority, which have evolved over time. Compliance can also capture efforts aimed at ensuring organizations are abiding by Compliance is a key level of financial oversight and regulation in finance, banking, and investing. These measures refer to rules or orders set down by a government regulator or independent authority to help police financial service or processing of transactions. Finance is governed by a set of established guidelines or specifications. Regulated markets all adhere to some authority, which have evolved over time. Compliance can also capture efforts aimed at ensuring organizations are abiding by Read this Term with the EU fiscal framework: not being subject to an excessive deficit procedure

What it says about the four criteria:

1. compliance with the EU fiscal framework: not being subject to an excessive deficit procedure
2. absence of severe macroeconomic imbalances
3. fiscal sustainability
4. sound and sustainable macroeconomic policies

This puts far too much judgement and power into the Governing Council's hands. What if they judge Italian debt as unsustainable? Moreover, there's a circular logic in play because it's not unsustainable so long as the ECB keeps driving down yields.

The real kicker though is " sound and sustainable macroeconomic policies". That part adds:

complying with the commitments submitted in the recovery and resilience plans for the Recovery and Resilience Facility and with the European Commission’s country-specific recommendations in the fiscal sphere under the European Semester

This is vague but it takes policymaking away from elected governments and gives it to the ECB and European Commission.

This is a slippery slope. I mean, how long is it until climate goals are one of the criteria? That's already implied in the commitments submitted in the recovery and resilience plans for the Recovery and Resilience Facility.

What if a eurozone country gets too cozy with Russia?

It won't be too long before the Governing Council sits around and decides whether a country defaults or not.