(Finance) – “In recent months we have witnessed a gradual materialization of the risk of market fragmentation. The marked increase in spreads on government bonds recorded in Italy and Greece but also, to a lesser extent, in the other countries of the area of the euro is a sign of concern tensions that do not seem to be explained by the trend of the macroeconomic situation“This was stated by the Governor of the Bank of Italy Ignazio Visco in a speech at the Analysis Forum.
“For Italy, in particular, our analyzes indicate that a level of the differential between the 10-year bond yields of Italy and Germany less than 150 basis points would be justified by the fundamentals and in any case, levels above 200 points would certainly not be – he explained – In recent weeks the upward movement in spreads has intensified, accompanied by a progressive increase in market volatility “.
Visco claimed that it is in the face of these developments, defined as “in many ways unjustified”which should be read yesterday’s decision by the Governing Council of the ECB to activate flexibility under the Pandemic Emergency Purchase Program (PEPP) and to ask the technical committees to speed up work on the creation of a new tool to counter fragmentation.
The anti-spread shield is not used for fiscal policies
The governor of the Bank of Italy underlined two aspects regarding these instruments. “First: they have purely monetary policy purposes, aimed at facilitating the pursuit of the objective of price stability; they serve no other purpose, least of all to finance imprudent and unsustainable fiscal policies – he said – Second: there is full complementarity between the gradual normalization of monetary policy and action to combat fragmentation. The former cannot proceed in an orderly manner without the latter; it is precisely to protect the right monetary policy stance that we must avoid malfunctions or interruptions in its transmission mechanism “.
Budget variance is not the norm
Underlining that Italy must maintain and consolidate the strengths of the economy and keep public finances under control, he explained that “the fiscal drift is a macroeconomic stabilization tool, but it cannot become the norm: a high and persistent deficit is not sustainable, it inevitably translates into an increase in the debt burden. The way to achieve lasting progress passes through economic development, through the enhancement of work and investment “.
The markets are too hawkish
As regards the monetary policy of the eurozone, “a trend that we continue to monitor is that of expectations on the future evolution of official rates”, said Visco. “The short-term real rate curve has shown a strong upward shift in recent days, a signal that indicates a widespread perception of a particularly hawkish orientation on the part of the ECB – he said – This perception is not, in my opinion, appropriate, given the attention we will continue to place on the evolution of the economic situation, which is currently still very uncertain “.