The segmentation of the euro-zone sovereign debt market is a huge problem for the ECB

The ECB is faced with a situation where, when risk-free interest rates rise, peripheral countries' yield spreads over Germany widen , which is normal as the yield on risk-free bonds becomes attractive again for investors. This is especially the case for peripheral countries with weak growth, which combine the problem of weak growth and the problem of high interest rates, leading to the risk of a debt crisis in these countries. We can see that if the ECB really wants to fight inflation through sufficiently high interest rates, it will absolutely have to have an instrument to tighten yield spreads between these countries. In order for this instrument not to interfere with overall interest rate policy, it would have to involve purchases of peripheral countries’ government bonds, offset by sales of core countries’ government bonds.