Because the ECB will not save Italy

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Mario Draghi, president of the European Central Bank, and Giovanni Tria, Italian finance minister, in Brussels, on 5 November 2018.
Mario Draghi, President of the European Central Bank, and Giovanni Tria, Italian Finance Minister, Brussels, 5 November 2018. Francisco Seco / AP

Chronicle "Seen from elsewhere". Can the tug of war between the Italian populist government and Brussels around the 2019 budget in Rome degenerate into a eurozone crisis? In recent days, the confused alliance between the League (right) and the 5-star movement (antisystem) plays the appeasement. Tuesday, December 4, Prime Minister Giuseppe Conte promised to present a new budget in the near future, in order to avoid European sanctions. But confusion still reigns around the coalition strategy. Since coming to power, some of its members play a dangerous game with the European Central Bank (ECB). Presenting it as a bulwark against fleeing markets, they try to exploit it.

Claudio Borghi, spokesman of the League, and Paolo Savona, minister of European affairs – two notorious eurosceptics – regularly raise this argument: if the Italian sovereign rates take off too violently, the Frankfurt Institute will come rescue to protect the euro , as the heart of the 2011 debt crisis. In the event of serious problems, the ECB president, Mario Draghi, "Take care of the situation" is "It would avoid another serious crisis in Europe", assured Mr. Savona at the end of October.

Even Mario Draghi could be Italian, but it's not Santa Claus

Even Mario Draghi could be Italian, but it's not Santa Claus. Of course, the huge public debt (130% of the gross domestic product) of the peninsula worries him. But it will never intervene to save a state that rejects European rules. This is not his role. His mandate forbids it. Those who think they can ignore it are deeply mistaken about the nature of the monetary institution.

Article reserved for our subscribers Read also After the historic rejection of the Italian budget, Brussels has little room for maneuver

Today, the ECB owns 360 billion euros of Italian bonds through the Bank of Italy, almost 15% of the country's public debt. It was obtained as part of its program for the purchase of public goods (quantitative easing in English or QE). But here it is: at the end of December, the QE will end. Who, beyond, will want to redeem Italian Treasury bills so far absorbed by the Frankfurt Institute?

The worst scenario

This question is decisive for the future. Even if investors are on appointment, Italy's borrowing rates should be stretched. It is unlikely that this will contaminate other countries to the point of threatening the stability of the euro area. But if it happens, what would the ECB do? This time, acting would be good in his term. In addition to the huge loans to banks, it could slightly extend the QE. But this obeys precise rules. The repurchases of debts follow a share that reflects the economic weight of each state, so as not to favor anyone. Italy would not be better than others.

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