Draghi presents himself to the industrialists with his old recipe: internal devaluation

Draghi made a great speech at the Confindustria assembly on Thursday. The first big news is that he sees inflation: “the increase in prices and the difficulty in supplying in some sectors. The global economy is going through a phase of rising prices, which also affects food products, freight rates and affects all stages of the production process. We do not yet know whether this recovery in inflation is temporary or permanent, structural ”, but it does not rule it out. Indeed, the purpose of the speech is to present his proposals to stop inflation.

Stop inflation. Yeah, but how? First of all, with specific investments in semiconductors, but it is stuff for the "long term". Then, with an EU purchasing consortium for raw materials, but he almost laughs as he says it, given the comparison he makes with an alleged "success" of the EU purchasing consortium for vaccines … that everything was less than a success, given the halter conditions imposed by the sellers. Finally, his main solution: if inflation "should prove to be lasting , it will be particularly important to increase the rate of growth of productivity , to avoid the risk of loss of international competitiveness".

Increase the rate of productivity growth. Yeah, but how? Apparently, with the mythical Recovery Fund . And here he dwells especially on the salvific virtues of the reforms that accompany him: competition, first of all… that is, the tender for maritime and bathing concessions which (according to him) would be “rents”; justice reform; simplifications; and then flex-security , necessary since “the ecological transition is not a choice, it is a necessity” but (he explained it last May in Porto ) will cause many unemployed. Without forgetting “the ministerial structure for the management and monitoring of the Plan”, “the public consultation on broadband” and “the important investments in ports and in the development of the maritime economy”. All this will allow (according to him) to "dissolve the structural knots that have linked our country for years".

But is solving the structural knots enough to increase the rate of productivity growth and, therefore, to stop inflation? No, that's not enough. He says it himself: " a government that tries not to cause damage is already a lot, but unfortunately it is not enough to face the challenges of the coming years". It is not enough.

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And why is this not enough? Because of the challenges of the coming years . And what are these challenges? “First and foremost the geopolitical tensions, protectionism, but also the probable change in financial conditions , the gradual weakening of fiscal stimuli ”.

This statement is in contradiction with others he makes in his speech: that "the Government for its part has no intention of raising taxes" and that "this phase requires a balanced and effective budget policy". A contradiction that he does not dissolve in his speech. But the solution of which is evident to anyone who is aware that the financial conditions and, therefore, the possibility of making fiscal stimuli depend not on Draghi, but on the purchases of the ECB. And, since Draghi sees inflation, consequently he cannot fail to see the end of purchases as well. On the other hand, Reuters has just confirmed that the ECB sees inflation far less temporary and far higher than its official forecasts. And Reuters itself has confirmed that the Italic illusion of replacing the PEPP extraordinary purchases program with an increase in the ordinary APP purchases program is, in fact, an illusion. How could Draghi not raise taxes if the ECB abandons him?

Therefore, and it is Draghi who says it, the changing financial conditions will produce the weakening of fiscal stimuli … despite the Recovery Fund . Well, necessarily the Recovery is not enough to face the challenges of the next few years : it will be offset by a monetary and fiscal tightening. Let's repeat it: it is not a subversive NoEuro anti-system to say it … but the Grand Master of all the € ists !

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What's left for him? An appeal to national unity : “we need to be united in order not to add internal uncertainty to the external one”. To do what? To do what was done in the years of the economic boom before the hot autumn of 1969: a "system of industrial relations", characterized by considerable wage moderation. The old income policy , renamed for the occasion "an economic, productive, social pact of the country", "a shared economic perspective", "sit down together and start talking", "a development perspective – or we want to call it pact – for the benefit of even the weakest and the next generations ”… but it is still the old income policy .

Now, the income policy is that thing where the cost of labor only increases in proportion to the increase in productivity. In turn, productivity is the relationship between the value of the goods produced and the cost of the hours needed to produce them. But businesses don't produce if they don't sell. So, for wages to rise, business sales need to increase. Such sales can increase in three ways:

  • first of all, in the presence of a generalized growth in demand. But it is Draghi himself who implicitly excludes it when he talks about geopolitical tensions , protectionism , changing financial conditions and weakening fiscal stimuli .
  • second, sales can increase as firms gain a competitive advantage through new investments. But the latter would invest only on the condition of being able to operate in a stable financial framework, that is, on the condition of being certain that they will not have to undergo a repeat of 2011: something that only the ECB could promise and does not promise, on the contrary. On the other hand, it is Draghi himself who implicitly excludes it, when he talks about the changing financial conditions and the weakening of fiscal stimuli . Yes, of course, Draghi has a lyrical streak: he calls companies to "national responsibility" (which can only be made investments), only to fall into the worst rhetoric ("I wish the page you are writing today with the your commitment was remembered as a historic moment … I am sure, knowing the virtues of the company, that it will be a page of which Italy will be proud "). But they are empty words;
  • third, sales can increase because firms raise prices less than inflation, even if labor costs rise less than inflation or wages are simply cut. The latter is not an extreme case: it has extensive precedents ( Minister De Stefani , 1922-23), contemporary examples ( Alitalia ) and was explicitly indicated by Draghi in the famous letter to Berlusconi in 2011 ("the Government should evaluate a reduction significant cost of public employment … if necessary, by reducing salaries "). Poor Enrico Letta , who celebrates and says he wants to do "on the model of what Ciampi did", did not understand that Ciampi operated within monetary conditions that were becoming expansive, while here it would be the reverse. Will it be possible to acquire the consent of labor to grant its own substantial impoverishment within a new 2011? We strongly doubt it.

In short, is that of Draghi a new development perspective? No, it is not new. But only the umpteenth repetition of his old recipe : internal devaluation. The last time he had expressed it to the Lincei . Can this old development perspective work? It could. But it is completely dependent on the goodwill of business and work. Which, in turn, depends on the good will of the ECB. And, as the goodwill of the ECB is about to turn into a new 2011: Draghi is trapped.

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Can Draghi get out of the trap? Inside the Euro, only by resorting to the state of exception. At the Confindustria Assembly, he said: "no one can be called out".

Why, one wonders, why can't I get out? If I get out, what happens to me? Draghi doesn't say it. But he praises the Green Pass as "an instrument of freedom, of security". That is, he praises an explicitly authoritarian instrument as an instrument of freedom : repression is freedom, black is white, the cat is a dog, the emperor's white horse was black… and no one can call himself out .

Is the Green Pass ready to remove entrepreneurs who have not signed up to the development pact from the market? Is the Green Pass ready to take away the wages of workers who have called themselves out of the income policy ? Is the Green Pass ready to remove the money from the current accounts of those who have not invested them as Draghi wants? Is the Green Pass ready to exclude voters who do not want to vote for the party of national responsibility from the seats? We would not be surprised. On the other hand, the Green Pass has blown away all constitutional constraints, in the riot of parties, in the silence of the Courts and with the signature of the President of the Republic. Now everything is possible.

The post Draghi introduces himself to industrialists with his old recipe: internal devaluation 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/draghi-si-presenta-agli-industriali-con-la-sua-vecchia-ricetta-svalutazione-interna/ on Sat, 25 Sep 2021 03:55:00 +0000.