We’re witnessing the start of the second euro crisis
Sovereign stress is showing up in Europe again as seen with the widening spread between Italian and German bonds.
Eric Lonergan, a Portfolio Manager at M&G, said recently on Twitter that we’re witnessing the start of the second euro crisis.
The crux of the problem is that sovereign debt is issued by national member states and money is created by a supranational entity — the ECB
There is an assumption that the ECB stands behind sovereigns, in extremis. And that this puts the risk of sovereign runs behind us. The error in this thinking is that the ECB’s support is conditional.
This is now a world where it's more difficult for the ECB to contain peripheral yields
There is an acknowledgment of the risk of ‘fragmentation,’ but there is no clarity of how we identify this or what the rules of the game are.
The TLTRO and dual interests are more significant innovations than QE.
Joe Weisenthal Bloomberg 14 juni 2022
Targeted longer-term refinancing operations (TLTROs)
https://www.ecb.europa.eu/mopo/implement/omo/tltro/html/index.en.html
About Eric Lonergan
https://www.philosophyofmoney.net/biography/
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