EU's Gas Price Cap Could Backfire, Raise Volatility: ECB

The EU's proposed gas price cap could jeopardize financial stability and needs to be redesigned, the ECB said in a formal opinion.

• The EU proposed market correction mechanism in November, aimed to reduce gas price spikes and market volatility.
• "The ECB considers that the current design of the proposed market correction mechanism may, in some circumstances, jeopardise financial stability in the euro area," the ECB said.
• "The mechanism's current design may increase volatility and related margin calls, challenge central counterparties' ability to manage financial risks, and may also incentivise migration from trading venues to the non-centrally cleared over-the-counter market," it added.
• The ECB also asked the EC to curb its role in the process of activating and ending the price mechanism as the current proposal may encroach on its independence and confer a new task on the bank without a necessary EU Treaty change, all the while other agencies may be better suited for the role.