Euro on the brink: EU’s single currency faces its ‘death’ as inaction could destroy euro

They warned the EU’s Frankfurt-based central bank to ramp up bond purchases in order to halt one of the sharpest rises in borrowing costs for Italy, the country worst hit by the viral outbreak outside of China. Italy’s 10-year bond yield grew above 2.1 percent on Monday, up nearly 0.4 percent, as remarks made by ECB president Christine Lagarde continue to cause concerns in the debt market. Ludovic Colin, a portfolio manager at Vontobel Asset Management, said: “Italy, and other Eurozone members, needs to be able to deploy a fiscal response to the crisis at a cheap price.

“The ECB can’t let this go further.”

Ms Lagarde last week provoked fury after claiming it is not the ECB’s job to “close the spread in bond markets”.

Italians spreads above German bonds – a key measure of country risk in the Eurozone – hit their highest level since last June.

Investors claim the damage is now down and only a strong-minded approach from Ms Lagarde will be able to persuade her critics she can keep control of borrowing costs through the EU’s single currency bloc.

Mark Downing, a chief investment official at BlueBay Asset Management, said: “It’s all well and good saying ‘sorry,’ but if they want to see some impact they’ll have to put their money where their mouth is.”

The ECB has already pledged a £108 billion expansion to its quantitive easing programme, on top of the £18 billion a month already committed to.

Some members of the ECB’s governing council have already suggested allowing the bank to increase its bond purchases.

The current asset purchase programme falls short of the £72 billion a month seen at the ECB’s quantitive easing peak.

Fabio Panetta, an ECB executive board member, said: “If necessary, we can further expand the programme.”

Philip Lane, the central bank’s chief economist, added it was “ready to do more” to curtail government debt fears.

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Experts believe the ECB would have to increase its bound-buying programme by at least an extra £90 billion for it to be effective.

“Last week’s ECB decision gave it more ammunition to combat the fallout from the coronavirus, but it will not be enough,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“We now think the bank will soon make an explicit commitment to keep sovereign bond yields low for all governments at least for the duration of the coronavirus crisis.”

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Italy has announced its own £22.5 billion rescue package to protect businesses and homeowners against the impact of coronavirus on the economy.

Economists, however, still expect a huge recession to rip through the country because its huge national debt, which sits at around 140 percent of GDP.

They warn unless the ECB can help keep borrowing costs low, investors could begin to question the sustainability of the debt.

Mr Dowding said: “If they don’t show up with the big bazooka, Lagarde could end up responsible for killing the euro.”

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