The Transmission Protection Instrument (TPI) is a backstop facility of the European Central Bank approved by its Governing Council on 21 July 2022, the same day the ECB began raising interest rates after years of negative policy rates. Its stated purpose is to ensure that the ECB's monetary policy stance is transmitted smoothly across all euro-area countries, by counteracting "unwarranted, disorderly market dynamics" — typically meaning sharp, self-fulfilling widening of sovereign bond spreads not justified by a country's fundamentals.
Under the TPI, the Eurosystem can purchase, on secondary markets, public-sector securities (with residual maturities between roughly one and ten years) issued by jurisdictions experiencing such disorderly dynamics. Private-sector securities may also be considered if appropriate. Purchases are not restricted ex ante in size, distinguishing the TPI from earlier programmes such as the Securities Markets Programme (2010) and giving it some resemblance to the never-activated Outright Monetary Transactions (OMT) framework announced by Mario Draghi in 2012.
Activation is conditional. The Governing Council assesses four cumulative criteria: (1) compliance with EU fiscal framework rules, including no excessive deficit procedure without corrective action; (2) absence of severe macroeconomic imbalances; (3) fiscal sustainability, drawing on analyses by the European Commission, ESM, IMF, and ECB staff; and (4) sound and sustainable macroeconomic policies, including respect for commitments under EU Recovery and Resilience Facility plans.
The TPI is designed to be sterilised, so that net purchases do not durably affect overall Eurosystem liquidity or the monetary policy stance. As of the most recent public ECB communications, the instrument has not been activated; its mere existence is intended to deter speculative spread widening. Critics, including some Bundesbank-aligned commentators, have raised concerns about fiscal-monetary boundary issues, while supporters view it as essential plumbing for a currency union lacking a common safe asset.
Example
In July 2022, the ECB Governing Council announced the TPI alongside its first rate hike in over a decade, partly in response to widening Italian-German bond spreads following the collapse of Mario Draghi's government.
Frequently asked questions
OMT, announced in 2012, requires the beneficiary country to be in an ESM macroeconomic adjustment programme. The TPI does not require a formal ESM programme but imposes its own four eligibility criteria assessed by the Governing Council.
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