Italy: End of ECB’s QE in the euro zone could spark another debt crisis - Natixis

Patrick Artus, Research Analyst at Natixis, suggests that the end of QE in the euro zone could spark another debt crisis in Italy - but the situation is very different to 2010.

Key Quotes

“There is legitimate cause for concern that when the ECB ends its quantitative easing programme, the increase in long-term interest rates in the euro zone will lead to another debt crisis in the countries with low potential growth, in particular Italy.”

“But we have to be careful, because the situation is very different to that in 2010 when the euro-zone crisis erupted. In 2010, Italy had a significant external deficit and the crisis was a balance-of-payments one (a “sudden stop”): Italy could no longer borrow from the rest of the world, resulting in the crisis. Today, Italy has a significant external surplus and it can use domestic savings to finance its fiscal deficits. This ought to be stabilising.”

“This suggests that Italy is immune from a balance-of-payments crisis (an end to lending by non-residents).”

“We believe that the likelihood of Italian domestic investors refusing to buy Italian government bonds (they will be needed to do so when the ECB ends its quantitative easing) is lower than the likelihood of non-residents refusing to buy Italian government bonds.”