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Factbox-ECB unveils new TPI anti-fragmentation instrument

Economy Jul 21, 2022 10:16AM ET
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© Reuters. FILE PHOTO: European flags are seen in front of the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. REUTERS/Wolfgang Rattay

FRANKFURT (Reuters) -The European Central Bank unveiled on Thursday its Transmission Protection Instrument (TPI), a new bond purchase scheme aimed at helping more indebted euro zone countries and preventing financial fragmentation within the currency bloc.

Following are details of the scheme.


ECB rate hikes push up borrowing costs on the bloc's periphery disproportionately, meaning countries like Italy, Spain and Portugal face a bigger rise in yields than "core" members like Germany and France.

Italy, which has a lot of debt and is engulfed in a government crisis, is especially vulnerable as markets fear a prolonged period of political instability.

The ECB raised rates for the first time in over a decade on Thursday and flagged further increases, so the bloc's southern rim faces a steady and potentially large rise in borrowing costs in the coming months.

"In particular, as the Governing Council continues normalising monetary policy, the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries," it said in a statement.


- The TPI can be activated "to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area".

- The scale of TPI purchases "depend on the severity of the risks facing monetary policy transmission" the ECB said, adding: "Purchases are not restricted ex ante."

- Purchases are to be focused on public sector securities with a remaining maturity of between one and 10 years. Private sector securities could be considered if appropriate.

- Eligibility for purchases will be based on what the ECB called a "cumulative list of criteria". These include: compliance with EU fiscal rules; absence of severe macroeconomic imbalances; fiscal sustainability as judged by bodies including the European Commission, the European Stability Mechanism and the International Monetary Fund; sound and sustainable macroeconomic policies complying with European Commission recommendations.

- The TPI will be in addition to the existing ECB toolkit. Reinvestment from the Pandemic Emergency Purchase Programme (PEPP) will remain the "first line of defence" to counter transmission risks and Outright Monetary Transactions (OMT) will continue as appropriate, the ECB said.

Factbox-ECB unveils new TPI anti-fragmentation instrument

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