By André Figueira de Sousa,
Fixed Income Fund Manager at DPAM


The euro was born on 1 January 1999. It was launched as the new common currency of 11 countries. Initially, it was born as an electronic currency and three years later, the Euro banknotes and coins were introduced. Today’s well-known crypto currencies are not the first digital currencies after all. The birth of the euro was a symbol of European integration, a process that brought peace, freedom, and prosperity to the continent.

The European Central Bank (ECB) was created to safeguard the euro and keep inflation under control. The ECB supervises the euro area banks, develops and issues banknotes, keeps financial infrastructures running smoothly and helps to preserve financial stability. This latter became a very important mission, especially after the Euro crisis. As a young institution (less than 30 years), is still finding the tools to best conduct its mission.

The well-known Targeted longer-term refinancing operations (TLTRO), that provides attractive financing to credit institutions, is one of these tools. By offering banks long-term funding at attractive conditions, they preserve favourable borrowing conditions for banks and stimulate lending to the real economy.

These programmes we mentioned target different types of underlying risks. During the Euro financial crisis, the ECB was forced to intervene, and on May 10, 2010 launched the Securities Markets Programme (SMP), to be able to actively buy euro area public and private debt securities. This way it ensured depth and liquidity in those dysfunctional market segments. The objective was to address the malfunctioning of debt capital markets and restore an appropriate monetary policy transmission mechanism. The scope of the interventions was determined by the Governing Council.

This initiative lasted till September 6, 2012, when the Governing Council of the ECB announced its decisions on a few technical features regarding the Eurosystem’s outright transactions in secondary markets. These operations will be known as Outright Monetary Transactions (OMTs) and will be conducted within a specific framework. The most important condition for OMT is a strict and effective conditionality attached to an appropriate European Stability Mechanism (ESM) programme.

The ESM was set up in October 2012 as a successor to the European Financial Stability Facility (EFSF). The EFSF was created as a temporary crisis resolution mechanism by the euro area Member States in June 2010. Its successor is a permanent solution for the lack of a backstop for euro area countries that no longer were able to fund themselves in debt capital markets. The EFSF and ESM remain separate legal entities but share staff, facilities, and operations. Thanks to this collective action they were able to tap financial markets to provide rescue funding to five of the euro area’s 19 member states during the worst of the crisis. Moreover, thanks to the innovative structure of, the rescue programmes were financed with minimal risk and virtually no direct cost to taxpayers elsewhere in the currency union. Regarding the OMT, such programmes can take the form of a full ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), including ESM’s primary market purchases of sovereigns in need.

Another tool was the Asset purchase programmes, “a package of non-standard monetary policy measures that also includes targeted longer-term refinancing operations”. This started in mid-2014 to ensure the monetary policy transmission mechanism provides the correct amount of policy accommodation needed to ensure price stability. Some of these programmes are:

    • Corporate sector purchase programme (CSPP)
    • Public sector purchase programme (PSPP)
    • Asset-backed securities purchase programme (ABSPP)
    • Third covered bond purchase programme (CBPP3)
    • And the most recent one the Pandemic emergency purchase programme (PEPP)


On the last ECB meeting July 21, 2022, a new tool came to the market: The Transmission Protection Instrument (TPI). The TPI can be activated to counter unwanted volatility in terms of market dynamics. The TPI will focus on public sector securities with a remaining maturity between one and ten years.

To be eligible to the TPI the ECB will consider multiple factors for granting the program to a country, in particular:

  1. Comply with the EU fiscal framework: the country will not be exposed to excessive deficit procedure (EDP).
  2. Absent of severe macroeconomic imbalances: the country is not exposed to excessive imbalance procedure (EIP).
  3. Fiscal sustainability: the public debt is sustainable, and the ECB will consider several European and international institutions’ debt sustainability analyses together with its own internal analysis.
  4. Sound and sustainable macroeconomic policies, complying with the commitments submitted in the recovery and resilience plans for the Recovery and Resilience Facility and with the European Commission’s country-specific recommendations.


This tool represents a great achievement in such a short period; however, it could be difficult to make it work based on the eligibility criteria defined by the ECB itself. Another point to this instrument is the reference to the PEPP reinvestments and to the OMT, that leaves the market wondering how much volatility the ECB would need to activate the TPI, and why it would need the TPI at all, if a country fulfils the majority/or all the points to be eligible.

As the ECB is in a hiking path, the likelihood of more news regarding the TPI program is high, especially after the summer break when supply will be back to the European Government Bond market. Interesting times.

Source: DPAM – August 2022


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