FRANKFURT (Reuters) – European Central Bank President Christine Lagarde said on Monday, when asked about the next possible Italian government, that the European Central Bank would not use its latest contingency plan to buy the bonds of countries making “political mistakes”.
A right-wing coalition led by Giorgia Meloni triumphed in Italy’s general election on Sunday, inheriting one of the eurozone’s heaviest debt burdens at a time of rising borrowing costs and a looming recession.
Meloni has pledged not to risk Italy’s fragile finances and stick to EU budget rules, but coalition partner Matteo Salvini has called for an increase in the deficit.
When asked in the European Parliament whether the European Central Bank could deploy the TPM to help Italy, Lagarde did not mention any country but said the scheme exists only to support financially wise countries while others should apply for a bailout.
The TPI was announced in July to stem a widening of borrowing costs between Italy – and other heavily indebted countries – and safe haven Germany, but it has not yet been used.
“It is (used) in a situation … where there are unregulated market dynamics that are not justified by fundamentals or economic policy mistakes that would have been made,” Lagarde said.
“Those are more important for OMT,” she added, referring to outright monetary transactions, a separate bond-buying scheme that requires an EU bailout.
The TPI comes with easier terms attached to it, such as respecting EU fiscal rules and not showing economic imbalances.
Struggling with the highest inflation in the eurozone’s history, Lagarde said countries that use their budgets to protect citizens from rising food and energy costs should be wary of further price growth.
Some eurozone governments are using fiscal measures to help households, but this increases the already high budget deficit and, by supporting demand, increases inflationary pressures.
“It is essential that the financial support used to protect these families from the impact of higher prices is temporary and targeted,” Lagarde said at a parliamentary hearing in Brussels. “This reduces the risks of fueling inflationary pressures, and thus facilitates the task of monetary policy.”
Lagarde also reiterated the ECB’s latest message that interest rates will need to rise during the next several policy meetings even as growth slows significantly.