The ECB is back on the front line of the crisis

More than half a trillion euros of emergency fiscal aid by the European Union apparently isn't sufficient to shift the burden of fighting the coronavirus crisis from the European Central Bank.

Just over a week since governments reached an uneasy agreement on a joint rescue package, strains in markets are reappearing, underscoring lingering worries that the accord isn't adequate.

The upshot is that the onus might already be back on the ECB to restrain borrowing costs — just a month after it unveiled a new €750 billion ($810 billion) bond-buying program.

The key measure haunting policymakers is the widening gap between the bond yields of indebted eurozone nations worst-hit by the virus, Italy and Spain, and the most fiscally powerful country, Germany. It's a tale familiar from the region's recurring sovereign debt turmoils, with the added element of populists — notably in Germany and the Netherlands — seeking to make political capital from handouts to those in need.

"Probably the most imminent, the most immediate trigger is what's happening in the Italian government bond market," said Nick Kounis, an economist at ABN Amro in Amsterdam, who expects the ECB to expand stimulus by another €500 billion this month. "Clearly on March 18 the ECB drew a line in the sand, and markets look to be testing that."

One reason investors might be bold enough to challenge the central bank is that the extra bond issuance governments will need is huge. Estimates run into the hundreds of billions of euros, raising questions over whether it can all be soaked up.

Another is that European finance ministers made their €540 billion support package mostly reliant on loans that will add to national debt burdens.

Fiscally conservative members shunned the idea of joint bonds that could have made it easier for stricken countries to finance their virus response, but would have risked a nationalist backlash at home.

"The absence of significant fiscal burden sharing at the EU level — with coronabonds off the table for now — has highlighted the enormity of the ECB's task," said Katharina Utermoehl, senior economist at Allianz SE.

Italy, too, has been reluctant to accept funds from the bloc's bailout fund under attack from euroskeptic opposition leader Matteo Salvini. The nation's debt is seen by the International Monetary Fund as reaching 155% of gross domestic product this year.

Italian bonds have swung in recent days, with signs that the ECB had to intervene on Wednesday to halt a damaging sell-off. They have rallied since, with the 10-year yield gap over Germany narrowing to 224 basis points Friday.

The rest of Europe's so-called periphery is also struggling. Spain's yield spread has widened, and Greece's second bond sale this year failed to drum up much demand, despite the securities now being eligible for the central bank's purchase and collateral programs.

Other risk indicators are flashing red, with one measure of the cost of loans between banks rising to the highest in more than four years. The Swiss franc, a traditional haven asset, touched its highest level against the euro since 2015.

Separately, Germany has pledged €2 billion ($2.2 billion) to help its beleaguered startups, but the policy has stalled after the country's governmental departments failed to agree on who has to pay.

More than two weeks after the aid plan was announced, Germany's finance and economy ministries are yet to find common ground over who is responsible for paying the short-term financial assistance, according to people familiar with the situation.

A spokesman for the economy ministry said both departments are working intensively on the package and details are still being worked out. A representative for the finance ministry declined to comment.