Allianz (ETR:ALVG)'s Chief Economist Ludovic Subran has expressed concern over Italy's escalating bond spread over Germany. In a recent discussion with Bloomberg Television's Manus Cranny and Dani Burger, Subran pointed out the unprecedented sell-off in Italian BTPs, which has pushed Italy’s 10-year bond yield more than 200 basis points above Germany's. This development, he noted, indicates an increased risk in the financial markets.
Subran also highlighted the government's questionable fiscal credibility as a factor contributing to the instability. He warned that the European Central Bank's (ECB) new crisis tool, the Transmission Protection Mechanism (TPM), might not be adequate to handle the situation. The economist suggested that the ECB's flexible Pandemic Emergency Purchase Program (PEPP) could play a crucial role in managing the crisis.
The lack of a regional agreement on the European Union’s 3% fiscal deficit limit was also raised by Subran as a concern. His remarks echo private concerns expressed by ECB chief Christine Lagarde about the fiscal trajectories of Italy and France. Subran emphasized that more discussions on fiscal rules are needed to address these issues.
In addition, Subran warned of potential political risks that could exacerbate Europe's financial instability. He noted that if former President Donald Trump were re-elected and reverted to his ’17-’19 playbook, Europe could face pressures similar to those experienced during its sovereign debt crisis in 2012. Furthermore, he pointed out that the potential rise of extreme parties in upcoming elections could pose a significant risk to financial stability.
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