ECB Official Warns QE Exit Could Spell Trouble for Italy's Debt

(Bloomberg) -- Current and former European Central Bank officials are warning about the consequences for Italian bonds of ending the institution’s asset-purchase program.

Speaking in Vienna on Tuesday, Governing Council member Ewald Nowotny noted that the central bank, under the ECB’s guidance, is the largest buyer of the country’s debt. He said that raises the question of who will purchase the roughly 275 billion euros ($310 billion) of government securities Italy is expected to issue next year.

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Former Irish central bank governor Patrick Honohan also said that the ECB’s plan to stop expanding its balance sheet after this year could put Italy in a weak spot.

“When this support is removed, the yield on Italian government bonds will be much more vulnerable,” Honohan said at an event in London.

Italian bond yields have surged this year as the nation’s populist administration tries to push through a high-spending budget against European Union rules, raising concerns over the sustainability of public finances.

“What we see is that markets are reacting, yields in Italy have gone up,” Nowotny said. “It may become more difficult to cover Italy’s financing needs in the near future.”

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