Unwavering support from the ECB to Italian banks

This is less than what was expected and will catch markets off guard. They’ve bought some flexibility should the outlook become less favourable, which might give some comfort.
But we’ve seen in the past that anything but wholehearted commitment tends to lead to unfavourable market outcomes. More details on the changed PSPP modalities in the press conference.
The slowly unwinding plan to recapitalise Monte dei Paschi threatens to develop into a big problem for Italy’s banks and potentially Europe as a whole.
Unwavering support from the ECB today could have helped contain what’s happening in Italy. Mario is going to have to get his communication just right if the ECB wants investors to think they’re completely committed to providing the maximum support.

Patrick O’Donnell
Investment Manager – Aberdeen Asset Management