The European Central Bank (ECB) tried to calm fears of a debt crisis following an emergency policy meeting on June 15 by promising “flexibility” while managing its huge balance sheet, as well as creating a new tool to tackle the risk of eurozone bond fragmentation.
During a meeting the previous week, the ECB stated that it planned to raise rates by 25 basis points in July to tackle inflation, its first such hike in 11 years. A bigger hike in September could follow if necessary, the ECB said, while adding that it would stop buying European government bonds.
These developments had a negative effect on countries in southern Europe, pushing up their borrowing costs sharply. There were also calls for the ECB to provide more information on how it planned to prevent the fragmentation of the eurozone bond market. A sharp selloff in the European bond market followed, forcing the ECB to hold an unscheduled emergency meeting….