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With the current credit widening and particularly Italian surge in yields, analysts at Danske Bank believe a forceful response from the ECB to act as a circuit breaker is needed.

Key quotes

“We believe the ECB needs to step in urgently and do ‘whatever it takes’. We argue for a QE scale up with ISIN limits, more flexible QE implementation or an SMP programme when the BTP-Bund spread hits 350-400bp in coming days.”

“A permanent deviation from the capital key would solve much of the problem concerning implementation. However, this would face significant pressure, as the capital key has served as the foundation of the PSPP programme.”

“We believe SMP programme is very suitable in the current situation. The political will to restart it may not be there but this programme was intended for situations such as this.”