If reported well, Lagarde may never have to use this new weapon, known as the Transmission Protection Mechanism (TPM).
Market pressure on Italian, Greek and Spanish debt could ease in response to its disclosure before it is even used – something Maradona and King would be proud of. In June, the announcement of a new instrument alone cooled borrowing costs from multi-year highs in parts of the eurozone.
But there are fears the new program will not be ready in time for next week’s meeting or will be poorly communicated by Lagarde.
Some of the ECB’s rate-setters have already signaled their opposition to a new monetary weapon.
Joachim Nagel, the head of Germany’s Bundesbank, warned that it would be “virtually impossible” to decide whether the difference in the countries’ borrowing costs was justified, adding that “one could easily find oneself in dire straits.”
“It would be fatal if governments assumed that the eurosystem would eventually be willing to provide favorable financing conditions for the member state,” said Nagel, a member of the ECB’s rate-setting Governing Council.
Jack Allen-Reynolds, an economist at Capital Economics, said the political upheaval in Italy “could make those opposed to TPM dig in because that’s exactly the situation they don’t want to be drawn into.”
“This could make the debate at the ECB meeting next week difficult,” he warned.
Lagarde will also face the task of ending negative interest rates without incident. The ECB’s key deposit rate is currently at a record low of minus 0.5%, but will soon be taken out of sub-zero territory.
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