EU To Propose Exempting “Green” Bonds From Deficit And Debt Limit Calculations
Yesterday, the ECB announced that in Q4, it would “modestly lower the pace of net asset purchases under the PEPP than in the previous two quarters” (even as Lagarde scrambled to convince markets not to call it tapering) with Reuters sources adding that “policymakers set a monthly target of between 60 billion and 70 billion euros” down from 80 billion currently “with flexibility to buy more or less, depending on market conditions.” Putting this non-taper taper in context, Nomura calculated that “even if net PEPP is scaled down to €60bn/month the ECB would still buy 85% of the remaining gross supply, strongly supporting EUR rates.”
Despite the shrinkage of ECB bond-buying, Lagarde made it clear that the fiscal spice must flow:
- *LAGARDE: FISCAL SUPPORT HAS TO BE CONTINUED
- *LAGARDE: FISCAL SUPPORT NEEDS TO BE MORE TARGETED
The most notable proposal is to exempt “green” investments from calculations of deficit and debt limits and temporarily forgetting existing rules that say debt must be cut every year, Reuters reported citing documents prepared for the ministers’ talks showed.
“The challenge in coming years will be to consolidate deficits while increasing green investments to achieve the ambitious targets of the EU to cut emissions or any other investments,” a note prepared by host Slovenia said.
In other words, the EU will use the “green” strawman of fighting climate change as a loophole to issue debt over and above the EU’s self-imposed ceilings.
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