Commerzbank chief economist Joerg Kraemer says the bigger risk is in Italy.
opposite to bond prices, down. That’s key because it was exorbitant bond market rates in 2011 that threatened Italy’s financial solvency.
The ECB also has a special program dubbed outright monetary transactions, or OMT, under which it could buy a country’s bonds to prevent it from facing ruinous borrowing costs.
But the ECB’s bond purchases will have to end at some point. Right now the earliest end is March, 2017, although that may be extended by three or six months at a 8 December meeting.
And Kraemer warns that deploying the OMT could strengthen support for anti-euro parties in Germany and the Netherlands, where stimulus sceptics argue such assistance only undermines the will to reform shaky government finances. Right now, it’s all hypothetical. “I still hope that by the end of this period, we have a couple of elected leaders who can get across more integration at the eurozone level,” said Brzeski.
“The negative scenario is, I’m wrong with at least one of these outcomes, we get a move toward more nationalist politics and policies in Europe, and we get a gradual further disintegration. And then it would be more than noise.”