shades fills you in

the eurozone is the set of countries that use the euro as their official currency. the european central bank handles monetary policy in the eurozone

a little background: the eurozone adopted a single currency to boost trade among member countries and boost economic stability

in mid-2022, people started worrying about “fragmentation”. to fight inflation, the ecb laid out plans to raise rates and slow asset purchases. for countries with a lot of debt, it’ll be very expensive to borrow. that means different countries will be treated differently -- i.e., fragmentation

the eurozone experienced a debt crisis from 2009 to 2012. greece, italy, portugal, spain, and ireland were all in danger of defaulting on their debt. the ecb and imf had to bail them out

marketwatch reports that by early june, people were trying to dump italian gvt bonds (compared to, say, german bonds). still, the problem isn’t nearly as bad as the crisis ten years ago (yet)

what can the ecb do tho? reuters says the ecb can: 1. do nothing, 2. reinvest in bonds of countries at risk, 3. directly bail out certain countries, and 4. resume its asset purchases across the eurozone

after its july 21 meeting, the ecb announced a new anti-fragmentation tool, the transmission protection instrument (tpi). the idea is to buy bonds from countries with high debt and borrowing costs -- but only if they maintain solid fiscal policies

the wsj thinks the ecb has to do more! just re-buying bonds in countries with a lot of debt isn’t enough. it has to figure out how to equalize bond yields across countries once and for all

the london school of economics also isn’t a fan of the tpi program. when fighting inflation, the goal should be to fight overall inflation, not handle regional disparity. second, you’re creating bad incentives for the debt-ridden countries

exactly says the financial times. now irresponsible governments will only act more irresponsibly. this is insane

but maybe the problem is in the entire eurozone system? a guardian op says the whole one currency thing was a mistake from the jump. europe is way too diverse. and it never built the financial structures it needed to allow a single currency to work well!