Until recently, the European Central Bank could simply throw money at the eurozone’s problems.
But that is no longer possible in the face of inflation, so it has now developed a new “anti-fragmentation” mechanism — the Transmission Protection Instrument (TPI) — to protect highly indebted member states in the event that their borrowing costs (sovereign-bond yields) rise much higher than those of less indebted member states. Should the need arise, the ECB will swap out low-debt member states’ bonds for those of high-debt member states in its portfolio, thereby reducing the interest-rate differential between them.
And who will decide whether there is indeed a need for such action? The ECB will — all by itself.