Where’s the ECB? | FT Alphaville

Where’s the ECB?

At pixel time, the Italian 10-year spread to Bunds was past 340bps — far above recent ECB intervention levels. One of the interesting things about current Italian spreads also is that they have remained wider than Spain’s throughout August.


And while we’re at it we’ll take theories about the ECB’s absence too.

The one doing the rounds currently is that the central bank is ‘punishing’ Italy for not going fast enough on its austerity plan.

“Beatings will continue until morale improves,” a bit. There’s no reason not to think this is what’s happening – but we think it’s a classic misreading of the situation (and of the liquidity collapse that has consumed Italy for almost two months now). Selling Italian government debt became a proxy for the break-up of the eurozone a long time ago and it is hardly surprising to see European banks hit the wall again on Monday (the Euro Stoxx 600 hit a 29-month low at pixel time).

And of course, there’s no reconciling the bank’s political aim here with the original purpose of the Securities Markets Programme, to keep markets liquid and functioning. It might have been right or wrong for the ECB to start buying Italian debt in the first place but arguably once it’s riding the tiger of the biggest debt stock in the eurozone, it can’t stop halfway.

Shame really. There are all these brilliant, plausible plans to harness the ECB’s balance sheet to stop bond markets from careening totally over the brink, but they all always miss the massive political path dependence of the current eurozone. Ironically it’s the obverse of the frequent analyst calls that the eurozone would survive when the crisis first grew beyond Greece, in June 2010 — i.e. even if the euro had nothing else, it had political will.

Well, that sentiment works both ways.

Related link:
Even a joint eurozone bond might not save the euro – FT
Italy as the single point of failure – FT Alphaville