REPEAT: MNI: ECB Must Shield EZ From Debt Attacks: Lega Spox

Repeats Story Initially Transmitted at 16:28 GMT Jun 7/12:28 EST Jun 7

--Introducing "Sustainable" Spread Caps On Sovereigns "Appropriate"

--Italy Spread 'Anomaly' Based On Unfounded Political Fears

By Silvia Marchetti

     ROME (MNI) - The European Central Bank should guarantee the sovereign debt

of all member states, particularly those facing unfounded default risk, to

shield the eurozone stability against financial speculators, Claudio Borghi,

economic adviser for Italy's Lega party, told MNI in an interview.

     "It is unacceptable that sovereign debt is governed by the spread frenzy

that drives market fears, thus limiting the very notion of sovereignty. The ECB

should be given more power to intervene in extreme cases through the purchase of

government securities of whichever member state is under financial attack," said

Borghi.

     Lega, now in coalition government with the 5 Star Movement, suggests

reforming the ECB's statute and governance model in order to give it more powers

of intervention, argued Borghi, renowned for his controversial anti-euro

stances.

     "The ECB should be given a set of guarantees to cover all its members, it

must be empowered along the lines of the Federal Reserve and the Bank of

England, both of which are lenders of last resort to their own countries. Their

mandate is in fact guaranteeing financial stability and staving-off external

sovereign debt attacks," he stressed.

     In his view, bond spreads are "an objective factor of instability for

Europe" indicating that certain sovereign debt faces default risk even in the

absence of real motive.

     "Spreads limit sovereignty. Debt is sovereign, meaning each member state

may have its own interest rate financing risk but there shouldn't be a

spread-linked default risk too," he said.

     --ITALY SPREADS UNJUSTIFIED

     Borghi argued that Italy's sharply higher spreads against German Bunds in

recent weeks was solely caused by "unjustified market fears" over the formation

of an anti-euro populist government that, at the end of the day, was

"unfounded".

     "Our definitive ruling agreement does not state, anywhere, that we want to

exit the eurozone. That was a conspiracy, fake news, built by the opposition to

stop us. But markets, fed with a lie, believed it and reacted negatively, making

the spread between German and Italian bonds spike," said Borghi.

     "This is unacceptable. No member state, in an integrated eurozone, should

have its sovereign debt turn into a victim of 'the spread'. The ECB can't allow

this," he added.

     One proposal is to empower the ECB with a tool that could place a cap on "a

tolerable spread level" which, once breached, would give Frankfurt the green

light for emergency intervention.

     "We haven't yet properly discussed this, but one plausible solution could

be to set a 200 basis points cap on the spread, once a country goes beyond it,

the ECB would step-in and automatically purchase sovereign securities of the

state under financial attack to stop market persecution and bring back

normality," said Borghi.

     It would be like a one-off, temporary mini asset-purchases mission against

unsustainable spreads.

     --QE END COULD BRING TROUBLE

     According to Borghi, recent market turbulence had shed light on these

spread anomalies, saying "for now, all member states' debt risk is somewhat

limited and shielded thanks to the ECB's quantitative easing, but what happens

once it ends? Are we all going to be potential spread targets?"

     In his view, the eurozone was the only monetary area in the world featuring

this spread "tyranny", and it needed to be vanquished. Also, the significant

difference in spreads across the bloc -- like that between Holland and Portugal

-- ultimately creates distortions and asymmetries within monetary union that

need addressing.

     "As long as a state is part of the eurozone, sovereign debt cannot be at

the mercy of market speculation. It is therefore paramount that the ECB is given

the necessary authority to back and guarantee the debts of all its members, just

like any (central) bank does," stressed Borghi.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com