The health crisis is expected to generate a global economic depression of a duration that is still difficult to assess but also, logically, to increase tensions over pre-existing weaknesses.

This should be particularly the case in the euro zone, where Italy, Spain and France could experience worrying financial developments as their public debts and related costs increase.

The decision of the German Constitutional Court to require the Bundesbank to prove that the purchase of sovereign debt from euro zone member countries, including Italy, is in line with its mandate lends credence to this assumption.

Immediately, the spread between Italian and German 10-year rates rose sharply to 250 bps, and has been clearly in the upper range since the start of the Covid-19 coronavirus health crisis.

A new sovereign debt crisis like the one that brought the euro zone to the brink of collapse in 2011 therefore seems possible if the Bundesbank no longer participates in the European Central Bank’s (ECB) PSPP.

Contents published on do not constitute investment advice.


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