>> GROUP: Shadow ECB Council / EZB-Schattenrat  Dr. Sylvain Broyer

Dr. Sylvain Broyer: To me, the political situation in Italy is dangerous for the euro-area as a whole, in the sense that the two populist parties ruling the country will in all likelihood disregard as much European rules as they can, budget rules first, in an attempt to provoke European authorities. A relapse between Italy and the EU of the political game of chicken that we had between Greece and the EU would have serious consequences, not only because the bulk of EUR legacy assets and sovereign/banks doom loop are concentrated in Italy but also because too little progress has been made since 2012 to improve the capability of the Eurozone to absorb asymmetric shocks, neither through fiscal transfers, nor through cross-border financial participations, nor through the credit channel. In other words, a fierce Italian crisis threatens to reveal that the EU has not integrated sufficiently and has wasted too much time since 2012.
It is of essence that such a crisis would impact the conduct of the ECB monetary policy. Nevertheless, I still believe that the issues that the ECB has on its screen right now are the US monetary policy and the euro exchange rate. Should the Fed normalize further on the back of the US labor market going hotter and should the euro depreciate on an Italian crisis, I don’t see why the ECB should not consider announcing a taper to its QE program in July.
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