The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Sovereign debt: ECB must keep liquidity pumping

Governor Trichet must play it safe as markets fret about sovereign debt.

We all know the saying "you made your bed, now you must lie in it". That’s what faces the European Union as it seeks a solution to the potential financial meltdown being generated by Greece’s fiscal crisis, which threatens to envelope its EU’s neighbours.

The EU’s inability to police its profligate member states in a situation where budget deficits have made a joke of the 3% of GDP ceiling, while incentivizing the banking system to invest in government debt that is anything but risk free, has placed the EU and its central bank in an awkward position. The event risk pertaining to the access to bond markets for southern European sovereigns has the potential to damage the fragile recovery within the banking sector, by propagating a repricing of risk. European banks, particularly in the south, are facing sharply higher funding costs and significant markdowns on the asset portfolios all at a time when they need to increase term funding. This threatens a recovery in the institutional loan markets and could limit access to the capital markets for high-yield bond issuers barely a year after they reopened for business.

This is not a time for the European Central Bank to begin its withdrawal of special liquidity programmes, which it says it has already begun to do.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree