Italian banks have asked for government guarantees on Italian bank bonds so that the banks can post the bonds as collateral at the ECB so they can borrow at the LTRO tomorrow.
It bears remembering that Ireland came a cropper after guaranteeing the debts of its domestic banks…
Does Italy want to make the same mistake as Ireland? I guess its risks are somewhat limited as amounts will be smaller than those guaranteed by Ireland, one would presume, plus the Italian economy is many times larger than that in Ireland.
The move certainly adds another layer of risk to an already risky situation.
