There is an old vice of Italian politics that has its roots in the Middle Ages: it is the so-called “call of the foreigner“. But if once the powers to be called to help were France or Spain, now it is international speculation. After all, we know, foreign interference is convenient for the left, especially in the electoral campaign. political alignment that every other day also hopes in financial palingenesis to return to the government, it remains only to understand how long the center-right majority that will probably come out of the polls will be able to stay in the saddle before the onslaught of speculation is unleashed . Yes, because not only interest rates have risen, making it increasingly burdensome for Italy to refinance its monstre public debt, but the instrument launched by Bank central European to appease the markets, it shield anti spread, does not exist. At least, not formally. The provision that should establish it, in fact, has not yet been published in the EU Official Gazette. At the moment there is only the commitment, made by the ECB during the meeting on 21 July, to intervene on the markets in the event that the spreads between member countries should get out of control. A danger that has become more concrete following the rise in interest rates, now at 1.25%, but with a further increase of 75 points expected for October. In short, the watchword was to avoid a disorderly growth in yields on sovereign debt that would hinder the proper functioning of monetary policy. Precisely for this reason, at the end of the meeting on 21 July, the ECB had announced the establishment of the Transmission Protection Instrument (TPI), commonly called the anti-spread shield.
But even then it was clear that the instrument referred in particular to Italy, the eurozone country which, above all due to a public debt equal to 150.4% of GDP in 2021, suffers more than all the others from the landslides that occur in the financial markets. With the new mechanism, the ECB should be able to calm yields by buying government bonds, with a residual maturity of between one and ten years, of those countries that are in greater difficulty. The aim is to avoid a fragmentation in the financial markets of the eurozone, or that a rise in interest rates could have a much heavier impact on some countries than others. In short, the task of the shield is to protect the functioning of the euro. However, little or nothing is known about the instrument so far. From Frankfurt they underline that “the legal act of the ICC will be ready if and when the ICC is activated.” A decision that, apparently, will be taken in complete autonomy by the Governing Council and without any transparency: the criteria listed in the only official document that speaks of the anti-spread shield, released in a press release by the ECB on 21 July last, are rather vague. First of all, Frankfurt will buy the debt of those countries “which suffer from a deterioration in financing conditions not justified by the fundamentals”.
However, in the absence of precise rules, it will be a discretionary decision of the Governing Council to determine when a widening of the spread is not “justified”. In this way, the ECB could assume the right to choose whether to intervene or not according to its political sympathies. Moreover, it is no coincidence that many have criticized the instrument for the most diverse reasons. According to Thomas Mayer, former chief economist of Deutsche Bank, “the activation of the ICT is linked to the condition that the country under pressure does not suffer from economic imbalances and distortions. But, if that were the case, it would be surprising if the markets widened the spread. (…) However, traders are much more likely to sell bonds for good reason. Then the ECB can activate the ICC only by ignoring the conditions it has established itself. ” Not only. The idea that snakes among financial operators is that Frankfurt will not intervene to contain spreads. This is why many are ready to sell. “We have been short since the beginning of the year. Italy’s problems seemed to have disappeared but it was only due to the fact that the ECB bought more than 100% of the net debt issues. They can’t do it now, ”a manager from BlueBay Asset Management told The Telegraph. For Andrea Braglia, CEO of Aequilibrium Scf, the anti-spread shield «is absolutely useless. In fact, in Europe, there is a huge liquidity problem while one of the main buyers, the ECB, will no longer buy securities. There is only one way liquidity problems are solved: with a crash. And this is what has been happening on the European government bond market since the beginning of the year. If you look at the prices of BTPs, German Bunds or French OATs, we are not facing a correction, but a collapse, which moreover has not ended. Even if the ICC were to be activated it will not be sufficient to counteract what is happening “. In short, the next government will have to deal with heavy tensions on the markets. To the delight of the left.