Hurricane spread through Italy: now it’s scary. The ECB’s Deafening Silence

Let’s face it, the ECB rate hike was on the phone. For weeks now, clear signals have been coming from Frankfurt about monetary tightening, in the form of a rise in the cost of money. And in the end it happened. But perhaps what the markets weren’t expecting is the deafening silence on the part of the Eurotower about the possibility of intervening in the future if sovereign bond yields, and hence spreads, get out of hand. The umbrella, especially for Italy, has closed at this time and it is not known if it will reopen, that is, if in the event of a debt crisis, the central bank will start collecting government bonds, supporting the debt. For now, with ten-year BTP yields at 3.8%, yesterday’s peak, financing the world’s third sovereign debt costs much more. Markets know it and investors know it, whose sales dragged Piazza Affari down to 5.17% near the close. The BTP/Bund spread, on the other hand, surpassed 230 basis points in the morning, to then close at 234 points. And since yesterday, households and businesses have known this too, as the magnitude of the ECB’s decisions, a first 25 basis point rise in a few weeks with a possible September encore of 50 points, quickly spread to retail. the financial sector, ie mortgages and loans.

In fact, with the board of directors in Amsterdam, the era of near-zero-cost mortgages is over. Those who apply for a new loan have already noticed this in recent months and were offered a higher rate than those granted last year. Of course, personal loans or installments will also be more expensive. Until now, companies, especially SMEs, had a simpler life thanks to loans at very low rates, in some cases obtained with state guarantees and with extended maturities thanks to the moratoriums introduced by the government to mitigate the effects of Covid on the economy. As of July, the entire operation will be more expensive, as the loan installments will be higher. And now? For Italy the problem exists, because not only does it cost more to finance the debt and the installments linked to the loans are heavier, but the country is much more exposed to possible future financial storms. And if, as the Bank of Italy made known, the GDP starts to fail (+ 2.6% the estimate for 2022), then the issue becomes serious, because a confidence problem is triggered.

Enrico Letta, leader of the Democratic Party, knows this well. “The increase in rates and the ECB’s policy is certainly a warning in this regard, it is very important that as a consequence of what is happening, the instability in the markets that runs the risk of penalizing us who have a higher debt, which we accelerate in the reforms. It is necessary to accelerate the reforms, the competition law project, in the other great delegations, it is necessary that Italy’s response is the response of a country that knows that it cannot afford not to carry out the important economic reforms that serve to demonstrate that we are a competitive country”.

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