Thread by @SonyKapoor

It is impossible to disentangle Italian debt sustainability from the scope, size and design of the @ecb’s market operations.

Italy’s debt is sustainable if #ECB deems it so through its actions. It is not, if #ECB expresses doubts about its sustainability

A circular question!

Put differently, the ECB and Italy are pathologically co-dependant.

Now that Italy is in the #Eurozone, it’s future depends on the @ECB.

At the same time, an #ECB that out of neglect and inaction, or something worse, sows doubts about #Italy, will bring about its own demise!

The @ecb is not your normal #OECD country central bank.

It has a formal “price stability” (#inflation) mandate. But the informal mandate to “hold the #eurozone together” is arguably even more important.

Whenever there is a clash between the two goals, the second will triumph!

This problem of a hidden “dual mandate” would be ok if symmetric policy tools could tackle both.

But the #eurozone is held together only through asymmetric actions by the @ecb.

This asymmetry is impossible to hide, even with Herculean efforts.

Much better to acknowledge it!

Far too much of the #ECB’s headspace and the time of its top management is wasted in the pretence of a symmetric approach to the #eurozone.

Such a “pretend” approach is also far more economically inefficient & with larger distortions than direct asymmetric policies will be!