After the blaze on Friday i government bonds of the country with the debt higher audiences in the Eurozone remain under pressure. To buy Btp investors are asking for a return of 4%the highest rate since December 2013. The spread with respect to German Bund arrived in the morning up to 248 basis points, ai highest since April 2020 when Italy was in full lockdown. The bankswhich have 400 billion in public securities whose value is inversely proportional to interest rates, are losing ground on the stock market ballasting Piazza Affari in a negative session for all EU lists. It is the result of a perfect storm which has been preparing for months, even if the “missed announcements” of the European Central Bank after last Thursday’s meeting. That is, the absence of details on a new one anti spread plansupported by the governors of Southern Europe and the France but on which the Germany brakes. The reticence about how it will work has become a perfect alibi to sell out especially (but not only) securities of the most fragile country, which is about to remain without the parachute represented by maxi purchases of the Eurotower started in 2015 and intensified during the pandemic and whose always evoked reforms structural proceed to slow. It is no coincidence that a spokesperson for the EU Commission Monday morning he invited Italy to “implement with determination” the reforms and investments envisaged by the NRP.
Let’s go back to the long-term causes common to the whole Eurozone. L’invasion Russia of Ukraine blew on aenergy inflation already on the rise and put pressure on European Central Bank because it reversed the course with respect to policies ultra-expansive of the last years. Which means an increase in the reference interest rates (now below zero) in order to cool demand and contain the price surge. There Fed it started doing so in early May and another strong squeeze is expected on Wednesday, after inflation hit a 40-year high in May. The ECB is moving towards normalization more gradually: in July, as announced last week by Christine Lagarde, will raise rates by 0.25 basis points, probably by another 0.50 in September. Hoping that it is not too late and above all that in a scenario heavily marked by the consequences of the conflict the “cooling” does not become recessionas many fear, considering that the rises were precisely the increase in energy prices and in Europe it does not seem that the economy is revving up through the wage increases. The other announcement, also expected, concerned the end, always starting from July of quantitative easing and extraordinary purchases of securities with the pandemic plan Pepp.
The speculation was mainly triggered by the fact that, before the board meeting, the belief had spread that the Eurotower would arrive operational details on how to intervene, when needed, against what insiders call “fragmentation“. That is the derives of the weaker countries, the demand by the markets of ever higher yields to refinance their debt to the point of making it difficult to sustainability. Up to break of the euro, to be clear: exactly the risk against which a decade ago, in 2012, the then president of the ECB Mario Draghi launched whatever it takes and presented the “bazooka”, the extraordinary instrument of the Outright Monetary Transactions with which Frankfurt would have thwarted attempts to collapse the single currency. A weapon never used, also because those purchases of bonds from countries in “serious macroeconomic difficulty” brought with them the conditionality of an inconvenient memorandum with the Mes.
Here: from Lagarde the details on how it should work this time (the Mes, whose reform moreover, has it not yet been ratified by the Italian Parliament?) have not arrived. The French economist, who has to deal with the positions of the “hawks” in the council, limited himself to saying that “if necessary, as we have shown in the past, we are ready to deploy an adjustment of existing tools, or new tools“But” there is no specific level of bond or loan rates, or bond spreads that will trigger this or that intervention. ” The option of having help of this type available, it must be said, would be appreciated not only in Rome but also in Madrid, Lisbon and Pariswhose yield differentials with respect to German Bunds they have expanded considerably although not to the same extent as those of the BTPs. But certainly in a context of economic slowdown Italy is extremely at risk, with a debt inflated by pandemic expenses and the difficulty of reduce the debt-to-GDP ratio to the extent foreseen before the war.
If several political forces attacked Lagarde talking about bad decisions, untimely or even attacks on the Peninsula. in fact, the rest – the condition of weakness that exposes sales – is all “homemade”, as he comments on Courier the former premier and EU commissioner Mario Monti: “On Friday the spread was 234 points, well above the French (62), Spanish (130), Portuguese (126), Cypriot (165) and slightly lower than the Greek one (288). But at the current level, our spread has come after a continuous rise started since minimum of 90 in February 2021, at the end of the Conte government “. The causes? “Since 2015, the reforms, with variations from government to government, structural reforms have often been delayed and watered down, when we have not tried to cancel those introduced. European condescension on deficits has often translated into current expenditure (bonus in primis) more than in public investments. The “deviation budget “, introduced as exceptional in the 2012 constitutional reform, is now routine”. Result: “With an entirely ‘homemade’ spread, and in the absence of a crisis in the eurozone, we are not in the most favorable conditions to expect the ECB to move away from the route to favor a country that he put himself in this situation, while benefiting from a particularly government authoritative and after being the country best treated by Europe for several years now (….). It is a real shame that Italy has to enter this new phase of European politics without having reaped all the possible benefits from the exceptional facilities offered so far “.
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