MUNICH ¨C Until recently, the European Central Bank could simply throw money at the eurozone¡¯s problems.
But that is no longer possible in the face of inflation, so it has now developed a new ¡°anti-fragmentation¡± mechanism ¡ª the Transmission Protection Instrument (TPI) ¡ª to protect highly indebted member states in the event that their borrowing costs (sovereign-bond yields) rise much higher than those of less indebted member states. Should the need arise, the ECB will swap out low-debt member states¡¯ bonds for those of high-debt member states in its portfolio, thereby reducing the interest-rate differential between them.
And who will decide whether there is indeed a need for such action? The ECB will ¡ª all by itself.
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