Independent Strategy

Italy’s Target 2 story

Italy’s Target 2 story is a microcosm of a macrocosm and one that tells us a lot about the ECB, its support for the Draghi government and the credibility of Draghi’s regeneration plan in the mind of investors. There were two causes of the rise in Italian Target 2 liabilities: 1. Purchases of BTPs by the ECB and the Bank of Italy. 2. Sellers of BTPs, whether domestic or foreign, keeping these proceeds outside of Italy. This shows the scale of the Draghi challenge. He needs to achieve credible progress on the regeneration plan. It must inspire investors to hold Italian assets. Draghi must also keep the ECB on board, to maintain ECSB purchases of BTPs.

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