Comments: The long -tested European Bank of China faced the turbulence of the French m

Source: Bloomberg

Author: Mark Schrors, Alexander Weber

According to people familiar with the matter, officials at the European Central Bank believed that there was no reason to panic in the market turbulence that swept France in the past few days.

This fluctuations have made the maximum single weekly increase in the difference between the 10 -year Treasury yields in France and Germany, and the market value of the French stock market has evaporated more than $ 20 billion.However, according to people familiar with the matter, the decision makers still believe that the situation is under control, and as of Friday, they have not even considered discussing crisis tools.As the discussion was not disclosed, people familiar with the matter required anonymous.

The European Central Bank spokesman not comment.

French President Macron decided to conduct early elections in advance after the European Parliament's election was defeated to try to prevent his extremely right -wing competitors Le Pen's rise.The market was turbulent.

Market response is not limited to France.The spread of bonds from member states such as Italy and other euro areas is also expanding.For the European Central Bank, any possibility of spread may evoke memories of the sovereign debt crisis in the region in the past decade.

If the turbulence is out of control, the European Central Bank will face difficulties and force officials to consider using crisis tools.As the second largest economy in the euro zone, the volume of the French economy may require the scale of intervention that has never been tried, and any action will depend on the performance of the next government.

The last time officials had to take an emergency measure, two years ago, when the prospect of decision makers' upcoming interest rate hikes caused Italian government bond yields to soar.

French Minister of Finance Lemel warned this week that if Le Pen's nationalist party wins, the debt crisis may erupt. He also said that if the newly established left -wing alliance wins, it may lead to France withdraw from the European Union.At the same time, Francois Villeroy de Galhau, president of the French Bank of France, said that the next government must quickly clarify its economic policies.

Although the European Central Bank, which has experienced the sovereign debt crisis in the previous ten years, has been used to turbulent, the necessity of adopting emergency actions is getting lower and lower.

In June 2022, the decision makers acted very quickly in response to the Italian bond crisis.

Within a few days, the European Central Bank governor Lagarde held a crisis meeting in the basement of a hotel in London to ensure that a new crisis tool aimed at the euro zone -the so -called conduction protection tools(TPI) -Cap to reach an agreement.

The creation of this tool and the existence of other tools may be a consolation factor that keeps decision makers optimistic and continue to wait and see.

However, recent market turmoil has led to more and more investors and analysts discuss the potential startup conditions of TPI, even if many people have a high degree of doubt about it.

"If the severe fiscal mistakes in France have caused a strong change in yields, the European Central Bank may be unwilling to use this tool immediately," Holger Schmieding, chief economist of Belenbaig Bank, wrote in a report this week.He also said that it would cause "great controversy" within the European Central Bank and European politics.

Isabel Schnabel, a member of the executive council of the European Central Bank's market operation, said in a speech on financial and monetary policy in early June that TPI "only applies to countries with sound and sustainable fiscal and macroeconomic policies" in early June.At that time, the European Union had not been elected, and Macron had not unexpectedly decided to conduct the National Parliament election in advance.

She emphasized that the European Central Bank could not use this tool to cope with "the continuous tension caused by the national fundamentals."

When asked about the situation in France, Lagarde told reporters on Friday that she did not want to comment on the domestic political situation.

She said in Dubrovnik, Croatia, said, "I just want to say that the European Central Bank has the responsibility to fulfill its mission, control inflation, and enables the inflation rate to return to the target level. This is what we want to do."