What is the maximum German long-term interest rate compatible with the absence of another public debt crisis in Italy?

Without the ECB’s interventions or commitment to intervene, the long-term yield spread between Italy and Germany would be much higher than today. In the present circumstances, particularly as the ECB can only use the reinvestment of principal re payments on its holdings to support one country ’s debt specifically, it is hard to see the 10-year yield spread between Italy and Germany falling below 140 basis points. Moreover, given Italy’s nominal potential growth (1.5%), the country’s 10-year interest rate must not exceed 1.5% if it is to avert another debt crisis. This gives a maximum “acceptable” level for Germany’s 10-year interest rate of around 0.1%. Before the shock of the war in Ukraine, financial market expectations showed that this level was already surpassed and would continue to be surpassed in the future. Italy’s public debt sustainability is indeed cause for concern.