![BoG governor on Bloomberg: The new support tool may be shelved](https://www.ot.gr/wp-content/uploads/2022/06/stournaras.jpeg)
The new tool being promoted to shield southern European countries as interest rates may rise “not need to be used if it is strong enough to persuade investors not to try it”.
This is what the governor of the Bank of Greece and member of the Board of Directors of the European Central Bank, Giannis Stournaras, said in a televised interview with Bloomberg.
Mr. Stournaras said that there is a “very good discussion” going on about this instrument and expressed his belief that a “consensual, effective solution” will be reached, which – as he estimates – will pleasantly surprise markets.
The good scenario
Mr Stournaras believes the new tool is powerful and it will be good to have in case it’s needed. Facing record high inflation, ECB officials, are expected to open the rate hike cycle on July 21, are while also scrambling to ensure there is no backlash in the bond markets of the eurozone’s most vulnerable members. Already, however, yields on Italian as well as Greek bonds recorded a significant jump in June, as a result of which work has accelerated on the so-called Transmission Protection Mechanism.
Reminiscent of… Draghi
As Bloomberg points out, Giannis Stournaras’ comments are reminiscent of the ECB’s “Outright Monetary Transactions” program, which was convincing enough, as a threat, that it was never used.
And while it is still not certain that this new instrument will be ready on July 21, the Greek Banker is more optimistic, without however going into details about the conditions for aid.
The increase in interest rates
Referring to the increase in interest rates, Mr. Stournaras considered the scenario of an increase of 25 basis points as very likely, adding that he does not rule out an even more aggressive reaction in September. The BoG governor sees price growth starting to slow towards the end of the year and approaching the medium-term target of 2% in 2024.
The rate hikes will coincide with a slowdown in the 19-member eurozone economy — which may yet slide into recession. Prospect of a Russian power outage this winter is causing more to forecast a contraction, while M. Stournaras sees stagflationary winds blowing.
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