Inflation not only devours purchasing power but, in the case of Italy, also what has been called the Draghi Effect on BTP rates and therefore on the BTP-Bund spread. A Draghi Effect that has practically disappeared, as shown by the graphs and the numbers: the differential between the rates of Italian 10-year government bonds and the rates on German Bunds with the same maturity has gone from a minimum of 90 basis points in February, in the wake of the ‘Draghi Effect’, at 135 basis points today, the record since October 2020. The yield of BTPs is just under 1%, more than double the low of 0.45% in February . A comparison with another peripheral country such as Spain also reveals a step backwards for Italian government bonds. The BTP-Bonos spread is close to 60 basis points, more than doubled from the post-arrival lows of Draghi (and even pre-arrival, actually) and the highs since January 2021.
The problem is not Mario Draghi, whose credibility in the world and among international investors remains more than solid. A further litmus test came from the Le Monde article dedicated to Italy:
“Mario Draghi, Italy’s last chance”, that is to say “Mario Draghi, Italy’s last chance”. The French daily recalls that, “called to Rome, the former president of the European Central Bank (ECB) has a mission: to restart the economy thanks to the money from the European relaunch”.
Paris highlights the titanic or even Herculean enterprise, to use the words of the newspaper, in which the President of the Council embarked:
“Solving the structural problems the country is suffering from it’s a task worthy of Hercules “.
Interviewed by Le Monde Edoardo Secchi, businessman and president of Club Italie-France – an organization whose mission is the development and cooperation between Italy and France – underlined how Mario Draghi is “a banker with a political vision, with a vision of the country, and this is the great news for the Italian political scene , responsible for 40 years of inaction “.
“It is the messiah that entrepreneurs were waiting for – Secchi told the Parisian newspaper – We have now a rescue electroshock capable of changing the path of the country: and this is what we entrepreneurs want. Among other things, a large part of Italian entrepreneurship, especially abroad, which has a more open mentality, as well as an Italian part, recognizes itself in Draghi and has turned its back on Salvini’s populism ”.
Having said this, it being understood that for the community of entrepreneurs and investors not only in France, but all over the world, it remains the anti-stagnation antidote that Italy needs, not even Draghi has the power to counter the economic forces that have set in motion with a speed that is certainly unexpected, with the reopening of the post-Covid-19 economy. A reopening which, as the events of the last few days show – see the discovery of the new Omicron variant – cannot be taken for granted.
Not for nothing, in explaining the turbulence of BTPs, the analysts of ING have pointed the finger at the uncertainty about what will be the next moves of the ECB by Christine Lagarde, pointing out with a graph that precisely this “protracted uncertainty of the ECB means higher volatility and, also, higher Italian rates”.
The comment states that “the markets continue to insist on pricing the possibility that the ECB proceed with an increase in rates as early as 2022 ″.
At the same time, “it seems that even the debt of the periphery (therefore also the BTPs) is increasingly pricing in the possibility that the support of the ECB through the purchase of assets – in particular through the PEPP – will sooner or later be dampened, and much faster than the rate at which rates could be raised ”.
It is something of particular concern, “since market volatility it is already rising, in the wake of the prospects for more restrictive monetary policies in the world ”.
ING took the trend of the 10-year BTP-Bund spread which, around 135 basis points, travels to its highest levels in more than a year.
Thus Edoardo Secchi, president of Club Italie-France interviewed by Le Monde, underlined how Mario Draghi is “a banker with a political vision, with a vision of the country, and this is the great news for the Italian political scene, responsible for 40 years of inaction “.
“It is the messiah that entrepreneurs were waiting for – Secchi told the Parisian newspaper – We have now a rescue electroshock capable of changing the path of the country: and this is what we entrepreneurs want. Among other things, a large part of Italian entrepreneurship, especially abroad, which has a more open mentality, as well as an Italian part, recognizes itself in Draghi and has turned its back on Salvini’s populism ”.
Uncertainty about next moves ECB beats bonds
Pending the meeting of the Governing Council of the ECB, which will be held on Thursday 16 December, the indications coming from the ECB or from sources close to it remain confused, not to say chaotic. With the Omicron variant that has spun the cards again, complicating the authorities’ attempt to churn out an outlook on GDP and growth in a more or less convinced way, Reuters has reported in the last few hours that the number of exponents is growing. to the ECB, who are considering the option of postponing that big announcement that the markets believe will arrive just in two weeks.
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Inflation at all-time highs risks cracking ECB beliefs, but unknown Omicron can overturn the 2022 scenario and central bank moves
December 16 is the day on which, according to the plans of Lagarde & Co., the ECB should make known the decision taken on its PEPP bazooka, so if the asset purchases that take place with this program really end in March 2022 and, also , how much debt Frankfurt will continue to buy in the euro area anyway. Three sources close to the Eurotower have signaled that there is agreement in the Governing Council for pandemic QE to end in March: but some governors would prefer the announcement moved to the next meeting on February 3, 2022, when it should be known. more on Omicron’s impact on the economy and inflation outlook. Having said that, the numbers on inflation are by no means reassuring, neither with regard to Italy, where it has taken off in 13 years at the most, and in the entire Eurozone. And the fact that, while admitting to being worried about the effects of the Omicron variant on employment, Fed number one Jerome Powell hoped for an acceleration of tapering, also underlining that, perhaps, it would be appropriate to stop using the adjective ‘ transitory ‘to the word inflation, leads many to wonder if even Christine Lagarde, in the end, will be forced to disavow herself.