Germany will finally have to pay for Italy’s debts

Bond yields of countries such as Italy and Spain shot up to their highest level for eight years after ECB rate-setters last Thursday announced plans to stop buying more bonds and start raising interest rates. The surge in borrowing costs has revived fears about a potential repeat of the damaging debt crises in 2012 and 2014 that nearly tore the eurozone apart.

The yield on the Italian 10-year bond was at 3.78 per cent on Wednesday afternoon, well below Tuesday’s closing level of 4.18 per cent.

Here is more from the FT.  You could say that markets are concerned, but not panicking.  I look at it this way.  When the ECB instituted “OMT” and other unusual moves in the 2011-2012 crisis, European monetary policy was too tight.  They could do this central bank-engineered rescue to the general benefit of the entire eurozone.  Today, the eurozone is much more supply constrained.  So monetizing Italian debt, whether done directly or indirectly, will involve real resource costs for the other parties in the eurozone.  Unlike the first time around.

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