Fitch: ECB could pay up to save euro

Tim Wallace
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A “CATACLYSMIC” collapse of the euro could take place if the European Central Bank (ECB) does not step up bond buying to save Italy from its enormous debts, credit ratings agency Fitch warned yesterday.

David Riley, head of sovereign ratings at Fitch, had already warned that Italy could face a downgrade later this month.

The country is large enough to threaten the collapse of the currency altogether, meaning the ECB should not hold back in its efforts now, he said. If the country does face financial disaster, it may prove “too big to rescue”, Riley told investors at a European roadshow yesterday.

“Can the euro be saved without more active engagement from the ECB? Quite frankly, we think not.”

Riley suggested that the ECB should set and enforce – through bond purchases – a cap on Italy’s ten-year bond yields of seven per cent.

He also proposed making the European Financial Stability Facility into a bank, enabling the bailout fund to borrow from the ECB instead of issuing bonds.

The analyst also warned that France is the weakest triple-A Eurozone country, and is weighed down further by guaranteeing the EFSF.

Despite his concerns, Riley confirmed Fitch does not expect any euro exits. “The cost benefit analysis doesn’t add up,” he said.