The ECB new spread-fighting tool received this week a lukewarm welcome from investors, despite its potential for unlimited asset purchases. That reflects both the ambiguity surrounding the criteria for the ECB to activate the Transmission Protection Instrument and the numerous eligibility conditions. In any case, it seems evident that the ECB will not deploy the TPI to alleviate investors’ biggest concern at the moment: the implications of fresh elections in Italy for the country’s economic management and debt sustainability. Next week, GDP data are likely to show a small expansion in the euro-zone economy in Q2, but survey measures and inflation data for July are set to reinforce the message that the euro-zone is mired in stagflation.
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