Because everything we know leads to the Troika. Unless Draghi …

21 June 20213 years ago babelfish

The future is unknown, but we know some things: the rules of the Stability Pact will return in 2023; inflation arrives and – with it – ECB purchases will cease. German elections will take place (the Green bubble is bursting, the next chancellor will be CDU) and French (Macron very weak). The BTP could enter into crisis and then there would be only the New Mes: the Troika. Unless Draghi …

[1] Fiscal austerity – We know that the Stability Pact will re-enter into force from 2023. Dombrowskis explained it: "We will keep the general safeguard clause active in 2022 and no longer starting from 2023 ". Not only that, the Pact will return to what it was before the pandemic. This was explained by the president of the Eurogroup sherpas , Tuomas Saarenheimo : “The reality is that, if there was a substantial change in the fiscal rules, it would not be easy, it would not be soon. I think it is very likely that it will take longer than we can keep the tax rules suspended… And the revised tax rules (if they are revised, there is a real possibility that they will not be revised) will come into effect later. " Following Wolfgang Schäuble , the future German Chancellor Armin Lachet , the Austrian Minister , Weidmann and tour company. In short, we will return to the austerity regime.

[2] End of ECB purchases – We know that inflation is coming, in the United States and Germany, everywhere except Italy. The appointed Weidmann first throws the stone ("4 percent in Germany at the end of the year"), then withdraws his hand ("but it will be temporary"): in a complicated game that aims not to excite the markets before the German elections of September, as well as the decision of the ECB not to extend the PEPP expected for the beginning of autumn. He states: “Once the emergency situation to deal with which the PEPP was created is over, the PEPP itself must be terminated” and states that this must happen regardless of the level of inflation. And it preemptively opposes any new program that takes its place.

Today, with the PEPP, the BTP is barely afloat; tomorrow, without the PEPP, the BTP will go down. Draghi explained it: "After a long period in which world inflation has remained too low, it has recently started to increase … Considering the high levels of debt in the world, the decisions of the monetary authorities are of particular relevance ". Oh well, then he turns the continent ( G7 , Barcelona ) to blather that, to keep the markets good, his own personal promise to "return to fiscal prudence as soon as the recovery is self-sufficient": a nonsense that not even in the circus …

À côté , we know the strategic review ECB will bring nothing good. ECB will not extend its target to include climate protection (which would have given the excuse for imaginative new purchases of securities). This was explained by the VP of Bundesbank and the CEO of BankItalia, apertis verbis : the contribution that central banks can make “can only be effectively pursuing their own goals, in particular price stability and financial stability”. As for the definition of price stability , it will perhaps go from "close to but below 2 per cent" to "2 per cent ebbasta ", but inflation measured by including the cost of home ownership in the calculation of inflation (the which will raise official inflation, making new bond purchases even more difficult). Lagarde explained it: “I hope so”.

[3] German elections – We know that the next German chancellor will be from the CDU, the nominated Armin Lachet. In fact, the green bubble has turned out to be such and the green candidate (Annalena Baerbock, known as the Giggina ) risks following the precipice that already belonged to the penultimate SDP candidate (Martin Schulz, known as the kapo ). Minister of Finance could be Friedrich Merz, the protégé of the appointed Schäuble and, therefore, one of the main friends of the Italian Lira . Liturri notes: “To stay on its feet, the Euro requires economic policy choices prohibited by the Treaties and unpopular with German public opinion. Then all that remains is to cheer and hope that they pursue the stated objectives to the end. It will be the way to make the monetary union implode under the weight of its incurable contradictions ”.

[4] French elections – We know that the French presidential elections are approaching and Macron's candidacy is very weak. This was explained by Philippe Joseph Martin , professor at Sciences Po, president of the French Council of Economic Analysis, vp of the CEPR: "If the management of the economic crisis is behind us, during the electoral campaign, I think this increases the chances that Le Pen can win, and the reason is that I think in the end what matters a lot, is whether the French will have a feeling of fear, or a feeling of anger … if there is a lot of anger and less fear, I think it clearly increases the probability that Le Pen will win ”. The FAZ has already headlined “ Le Pen on the rise ” and comments: “It says it wants to stay in the euro, but would it also accept the common rules for the common currency? This is the big question ”; only to answer that no: "Economic experts such as former deputies Bernard Monot or Philippe Murer have turned their backs on it, because they do not believe that a true national sovereign economic program within the euro is feasible". How to blame them?

[5] End of the Draghi Government – We know that the Draghi Government will not last beyond the election of the President of the Republic, whatever the outcome. Francesco Giavazzi , Draghi's right-hand man at Palazzo Chigi explained it to us: "The government will last, in my opinion, less than a year … we will be here at Christmas but it is not clear at the beginning of next year". Why? “I think there are institutional constraints: a new president will be elected in January next year… so there is an obvious fixed point on January 15th. The new president could ask Draghi to continue. In that case it would continue, but I think there is a strong argument not to wait: this will be a year of electoral campaign … these are the reasons that make me cautious ”.

Of course, Giavazzi does not say that Draghi will become president of the Republic. Indeed, it implicitly excludes it, nor could it do anything else. But it does not offer any elements why precisely this cannot happen.

[5] Reform € of the Draghi Government – Indeed, an element that suggests Draghi points precisely to the Presidency of the Republic, is his renunciation of the great reforms he had anticipated . Giavazzi explained: “The expectations are many. my opinion is that there will be a lot of disappointment… I think we can do very few things and try to do them well… The Recovery and Resilience Plan contains elements that could make reform possible, but it cannot . So a great expectation and, perhaps, a great disappointment … but I think that by putting this plan into shape and starting it, we will justify our salary, especially since we work pro bono ”. And then it extends to small concrete interventions, literally: reforming "the way hospital managers are chosen" and "a boy who takes the children to run somewhere in the afternoons after school" [sic] .

On the other hand, anyone who has read the decrees issued up to now, will have noticed a florilege of new privileges: for example, the silent assent of the Superintendencies granted only to those who lay cables … all the others fuck each other. Capezzone notes: “In an institutionally sound system, ordinary procedures need to be streamlined. On the contrary, it is anomalous to have a bureaucratic jungle as a rule , and instead a maxi preferential lane (that of the PNRR) where the central power decides what it wants ”.

[7] Public accounts of the Draghi government – Draghi himself : "The argument in support of monetary and fiscal expansion remains convincing". Again Giavazzi: "The important decision was to significantly increase the deficit, bringing it to something around 11 percent of GDP this year, abandoning the primary surpluses". Boeri and Perotti comment: "There is a fundamental difference with 2011: back then the state budget had the highest primary surplus in Europe, today we have very ambitious spending plans with permanent effects , which will leave us a legacy of primary deficits substantial … A small increase in interest rates is enough, or a small halt to the recovery, or a hitch in the reforms of the NRP, and the public debt / GDP ratio will start to rise again ”. Already today, “our public debt is around 160 per cent of national income. Just under a third is held by the ECB… the remainder, around 115 per cent of GDP, is held by private investors. It is more or less the same level as in summer 2011 , at the time of the debt crisis ”.

* * *

Of course, there would be nothing wrong with Italy continuing an expansive fiscal policy, were it not that the hour of air granted to us by the ECB is really about to end.

Lucrezia Reichlin realizes this and first gets angry: “it's not a huge reform program” and “Draghi foresees a lot of consolidation after 2022, when he won't be there, so he behaves like any other politician”. Then he launches the curse: “we are in a very dangerous situation. A risk premium could materialize and we cannot expect the ECB to be there only for Italy, of course. So, I think we need a solution and the solution I think would be to negotiate something that allows us to have slow debt consolidation over the next few decades. " The Red Princess does not say it, but this is something Italy should negotiate with the MES: the Troika. More precisely with the Troika of the New Mes Treaty : the one that imposes the restructuring of the BTP, that is the mass bailin , that is the biblical recession. Nothing less.

Schäuble pretended to suggest an alternative: “a European institution with powers to enforce the rules”; but “this would require changes to the treaty”, so there is only the Mes.

* * *

Sure, Draghi says the same thing as Biden. But does he have Biden's backing ? Will the Fed buy BTPs instead of the ECB? Impossible. Or, does Draghi have the backing of the French ECB (that is, of a Latin ECB that he would continue to buy even at the cost of letting the Germans leave)? Technically possible but politically inscrutable. Or again, is Draghi ready for Italy alone to impose the control of capital movements , without first further useless bloodshed? We do not know.

However, if the answer to one of these questions is yes, then Draghi is the new Cavour, if not, then Draghi is a clown and Italy is a gunpowder barrel ready to explode. And the fuse is now almost completely worn out.

Happy holiday.

The post Because everything we know leads to the Troika. Unless Draghi… appeared first on Atlantico Quotidiano .

This is a machine translation from Italian language of a post published on Atlantico Quotidiano at the URL http://www.atlanticoquotidiano.it/quotidiano/perche-tutto-cio-che-sappiamo-porta-alla-troika-a-meno-che-draghi/ on Mon, 21 Jun 2021 03:57:00 +0000.