The new bond reinvestment plan introduced by the European Central Bank (ECB) earlier this week to help indebted EU states is unlikely to work, Reuters and Bloomberg report, citing analysts.
The ECB came up with the plan to help the EU’s southern nations, the bloc’s most indebted, with mounting obligations. The regulator said it would direct cash to more indebted nations from debt maturing in the €1.7 trillion ($1.8 trillion) pandemic support scheme. This means that while prior to the announcement, the process of buying ECB bonds by states took place in accordance with each individual country’s investment, preference would now be given to countries with high debt, such as Italy, with its gross debt amounting to around 150% of GDP.
However, experts say the move is unlikely to solve the debt crises. Olli Rehn, Finland’s Central Bank chief, told Reuters that the measure will merely help prevent “unwarranted” market moves and will not help countries in case of truly large debt issues.