The European Central Bank is working on an instrument to keep sovereign yields closely aligned across the euro area. A spread control device would be a courageous step – but it’s in the wrong direction. The plan is unclear, dangerous and unnecessary. The instrument would involve the ECB selectively purchasing government bonds of a member country when rising risk premia threaten the euro area’s financial fragmentation. The plan is unclear because the concrete design of the instrument remains extremely fuzzy. The devil is in the detail. The obvious question of clear criteria for when the envisaged new tool should be ... (full story)