The political chaos in Italy is providing no help to the ECB as we see a further widening in bond spreads in the region. This comes at a rather inconvenient time for the central bank, as they are seeking to push that down in trying to smooth out policy transmission and reduce fragmentation risks.
An issue to consider now is where does the ECB draw the line in differentiating from political and financial risks? If the upheaval in Italy sees the rightwing parties do well and domestic bonds sell off, should the ECB step in then? That's not the kind of thing that would go down too well within the region itself.
But for the central bank, one can argue that they would rather prevent contagion risks but there will potentially be plenty of controversy as Italian politics seek to complicate the ECB's efforts to nip fragmentation risks in the bud.
