ECB tool has name, but arrival on Jul 21 seems uncertain: sources

EUROPEAN Central Bank (ECB) policymakers have a working name for their new crisis tool but aren't yet displaying certainty that it will be ready at their Jul 21 decision, according to people familiar with the matter.

The measure is being referred to as the Transmission Protection Mechanism, though that could still change when it is unveiled, the people said, declining to be identified because discussions are private. Talks proceeded at a scheduled meeting on Wednesday (Jul 6), though a lot of work is still to be done, they said.

While officials in Frankfurt are quietly confident that fundamental disagreements can ultimately be overcome, debates over tactics are persisting and there's a considerable amount of detail to process, the people said.

Among topics that continue to feature in discussions are ensuring the measure doesn't counteract interest-rate hikes, what conditions should apply to any government benefiting from it, and potential legal hurdles, the people said.

An ECB spokesperson declined to comment on the deliberations of the Governing Council.

Italian bonds extended their slide after the news, raising the 10-year yield premium over its German peer - a major gauge of risk in the region - by 8 basis points to 203 basis points, a 3-week high.

ECB officials led by Christine Lagarde said at their June policy meeting that they will start hiking rates at the upcoming decision in July. They were then forced to pledge an accompanying crisis tool to contain the effects on weaker euro members after a blowout of Italian bond yields.

Policymakers have tried to reassure investors that a measure will be ready. On Jun 29 at the ECB's annual retreat in Sintra, Portugal, Lagarde stated that a new tool "will be considered by the Governing Council" on Jul 21, saying at the time that "it's a work in progress".

Meanwhile, vice-president Luis de Guindos said earlier this week that "I hope for sure that we will reach an agreement."

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He spoke just after Bundesbank president Joachim Nagel broke with recent convention of keeping disagreements behind closed doors to publicly set out strict terms intended to ensure the ECB steers clear of monetary financing. He had already questioned the need to promise such a tool at an emergency meeting on Jun 15.

The tone of his remarks suggested a likely hard-fought battle will ensue before any final accord on a measure is reached. The prospect that such opposition might water down the efficacy of any tool has been raised by economists, including those at Bloomberg Economics.

Crisis backstop

In an interview published Thursday, Bank of France governor Francois Villeroy de Galhau sought to reassure that the new measure will be large and nimble enough that it won't actually need to be used.

"It is probable that the existence alone of this instrument allowing fast and massive intervention if needed is sufficient, without needing to activate it," Villeroy told Les Echos newspaper. Earlier in the day, he referred to the new measure as a "protection tool".

Later on Thursday, his Greek colleague, Yannis Stournaras, confirmed the name of the measure.

"A new instrument - the transmission protection mechanism, or TPM - is also under consideration to temper fragmentation episodes," he said on a panel.

If the name changes by the time it's unveiled, it wouldn't be the first time.

In 2012, Bloomberg revealed that then-President Mario Draghi's crisis tool to back up his claim that the ECB would do "whatever it takes" to save the euro would be called Monetary Outright Transactions. Policy makers then switched the words around to Outright Monetary Transactions. BLOOMBERG