Key Italian lawmaker warns over threat of contagion

By Lorenzo Totaro

The ECB should keep providing a shield to the government securities of all monetary union members to avoid a dismantling of the euro system, a top politician from Italy’s ruling coalition said.

"There cannot be a system at the mercy of market movements” without any shields by the central bank, Claudio Borghi, the eurosceptic head of the budget committee in Italy’s lower house, said.

Nowadays, there is a system that has a residual amount of quantitative easing, but with everybody knowing that this is being phased out and will come to an end soon,” he said.

Italy’s 10-year bond yield fell five basis points, to 3.05%, but still stayed close to the highest since the government took power, in June.

The yield spread, with similarly dated German bunds eased seven basis points, to 272. The spread had been below 150 for much of the first half of the year.

The League lawmaker’s call for the ECB to provide a guarantee to the periphery of the eurozone follows two separate posts on Twitter, in which he noted that the spreads of bonds issued by other nations, such as Spain’s over Germany’s, are also widening.

He added that “either the ECB guarantee will come or everything will be dismantled”, in a reference to the euro system.

With investors turning against Turkey, the government in Rome is trying to avoid Italy being next in line.

Italy has had contacts with the ECB to discuss the risk of a speculative attack on its debt, a source said earlier in the week.

It is significant that an external event, like Turkey, that has nothing to do with Italy, unleashes such an effect,” lawmaker, Mr Borghi said.

“All know the fence that protects the prey will soon be lifted and the financial speculation easily sees the periphery’s debt as an easy target and is positioning itself ahead of the next developments,” he said, in a reference to the phasing-out of the ECB’s bond-purchasing programme. Italian prime minister Giuseppe Conte, deputy prime ministers Luigi Di Maio and Matteo Salvini, and finance minister Giovanni Tria, held a conference on Monday to continue their discussions on the 2019 budget.

Bloomberg