Italy has no need for a bailout, but investors would welcome a "memorandum of understanding" with the European Union in order to reinforce the Italian government's programme of austerity and reforms, making it almost impossible for the winner of the upcoming election to derail it.
Italy has no need for a bailout, but investors would welcome a “memorandum of understanding” with the European Union in order to reinforce the Italian government’s programme of austerity and reforms, making it almost impossible for the winner of the upcoming election to derail it.
Cosimo Marasciulo (pictured), head of European government bonds and foreign exchange at Pioneer Investments, called for a commitment between the EU which would be needed to convince financial markets and prevent further turbulence.
“An appropriate financial package for Spain, and a memorandum of understanding for Italy, may mark the beginning of the path towards an enforced fiscal union, a development which we would consider to be positive,” he said.
Marasciulo added that this process involves some sort of fiscal supervision and is likely to meet political opposition: “As the debate goes on, the ECB is set to remain the interim manager of the crisis, with all the tools it has at its disposal.”
Meanwhile, August did not spring any surprises in the eurozone and markets remained calm.
In this environment, Pioneer recommends a cautious approach, particularly after seeing the diverse reaction from financial markets to the council’s decisions.
“Now that the dust has settled somewhat, we believe that the open-market operations announced by ECB’s Mario Draghi on 2nd August are appropriate and should allay the concerns of Germany’s central bank regarding the ECB overstepping its mandate,” he said.
According to Pioneer, European investors may have been disappointed at the lack of a broad-based bond purchase plan such as the quantitative easing carried out by the US Federal Reserve.
“We should make it clear, however, that the ECB’s main concerns are for the IFM, so its open-market operations are not aimed at providing a shield against speculators. In fact, the institutional buyer of government debt is the rescue fund which would buy government debt when issued, thereby providing direct financing to any government requiring it,” Marasciulo warned.