The Palais Brongniart, former Paris Stock Exchange, located at Place de la Bourse in Paris, France, March 25, 2024. REUTERS/Sarah Meyssonnier/File PhotoPolicymakers hope bond rescue can be avoided
The rise in the risk premium investors demand to hold French debt to a 12-year high of roughly 80 points a few weeks ago did not meet either condition, according to ECB chief economist Philip Lane, whoAnother policymaker at the Sintra gathering said even a risk premium - gauged by the gap between French and benchmark German sovereign bond yields - of 100 basis points would not warrant action and another said the current spreads appear tight considering France's high public debt.
This may prove a problem for France, which is under an "excessive deficit procedure" by the European Commission, although ECB President Christine Lagarde has said this is just "an alternative condition". This would particularly be the case if the bond selloff in France spreads to other debt-laden countries such as Greece, Italy, Portugal and Greece.
Financial market participants speculate the ECB might buy bonds from countries other than France but central bankers found the notion of fighting a fire without tackling its source unconvincing.