That screeching sound you hear will be the ECB slamming the brakes on balance-sheet expansion. Broadly speaking, the ECB currently has three programs:
a long-standing Asset Purchase Program (APP),
the Pandemic Emergency Purchase Program (PEPP) and
a third incarnation of a plan to encourage banks to lend to the real economy known as targeted longer-term refinancing operations, or TLTRO.
The central bank has said it will intervene if yield spreads widen in unjustifiable ways. With what, though? And what counts as unjustifiable? The biggest concern is Italy
The second is for Italy to leave the euro. From an Italian perspective, this would have the advantage of imposing losses on creditor countries such as Germany via outstanding balances in the Target 2 “settlement” system.
Former ECB president and current Italian Prime Minister Mario Draghi and Emmanuel Macron, the embattled French president who is up for election in the spring, signed a joint letter just before Christmas implicitly calling for the transfer of all euro zone government debt since 2007 to such an agency.
Richard Cookson Bloomberg 11 januari 2022