France’s biggest banker has hit back at Italian demands to cancel the trillions of bonds bought by the European Central Bank as part of its efforts to fight the pandemic, warning that the move would be a “very dangerous path.”
The ECB has so far announced € 1.35 trillion bond purchases under its Pandemic Emergency Purchase Program (PEPP) and is expected to extend its efforts next week until to 500 billion euros as Europe languishes under lockdowns and a second wave.
Italy is one of the countries hardest hit by Covid and was already in debt before the crisis. This week, Prime Minister Guiseppe Conte’s closest aide, Riccardo Fraccaro, said monetary policy should support eurozone states in “all possible ways,” including “the cancellation of sovereign bonds purchased during the pandemic or the perpetual lengthening of their maturity ”.
But ECB politician François Villeroy de Galhau, governor of the Banque de France, rejected the suggestions, saying the decision could backfire.
“To consider the cancellation of the debt would be a very dangerous path,” he told a French newspaper.
He added: “When the euro was introduced, France, like other states, committed by treaty to always reimburse the central bank. It is an absolutely essential pact of confidence. “