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the ECB, which buys securities on the secondary market under the Qe, has been so far fundamental in the defense of the euro area, since the famous "Anything" pronounced in his time by Mario Draghi.
Prior to Draghi's intervention, 10-year government bond yields were still between 5% and 6%, while at the two-year maturity, the Treasury was refinancing itself at 4%. Over the next three years, rates have fallen vertically, reaching historic lows. The gap, which then exceeded 500 points, fell below 100 points in 2015. Interest expenditures rose from 5.2% to 4% of GDP, guaranteeing a reduction in debt service. about 17 billion over five years. The monetary policy of the ECB was essential to reactivate the credit channel to the real economy and reactivate the economic machine.
The Italian political uncertainty has now fueled a serious crisis of confidence in the markets that pushed foreign investors to reduce their exposure to BTp up to 68 billion euros from May. The future remains the unknown factor on which we will refinance our public debt in 2019. The contribution of the ECB is set to decline. In fact, as of next year, the QE will end and the central bank will only be able to reinvest the securities at their natural maturity (about 30 billion euros compared to Italy in 2019). The ECB could reactivate the QE or give up the rate hike, expected as early as 2019, only if inflation was lower than expected.
The OMT tool
One instrument that could really make the difference in Italy's risk management, which has never been used up to now, is the so-called absolute monetary transactions. The acronym that defines the instrument for the ECB to buy potentially unlimited amounts of government bonds at the request of a member country, provided that it agrees to comply with a series of conditions for fiscal discipline. In other words, the guarantee of last resort of the ECB is not an automatism, but certain political variables are involved and constitute the antechamber of the commissioner.
banks
In all this, a much more versatile tool to help banks hit by the depreciation of government securities in the portfolio again would be a new low-cost liquidity issue, the Tltro (longer-term targeted refinancing operation). "We expect the ECB to launch new Tltro maneuvers in the coming months," said Lionel Melin, Lyelor AM's chief strategist, "an extension of these liquidity lines (with stricter conditions that may be required). Automatically aligning with the ECB's leading rates) seems difficult to avoid ".
In fact, for Italian banks, the repayment of Tltro's previous parts would entail a higher cost of financing (via new bank bond issues), which would have an impact on the profitability of the institutions at a still difficult time.
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