Draghi’s battle is not for the Euro but for reforms: the latest dividend from the external bond
Draghi presented the national RF-Recovery Fund (or PNRR) on April 27, describing him as a great Christian Democrat manger, peppered with reforms of the most gory details of which he has kept Parliament in the dark.
The biggest omission, however, was reserved for the timing of the collection of the legendary euro billion . He told Parliament that he was forced to give him very little time to discuss the national Recovery Plan , as "the Commission will go to the markets to fund this fund around the month of May-June , then the window will close temporarily for summer and, therefore, if the Plan is presented earlier, you have access to the first share of the provision "," we could have presented the plan on May 10, and we would have had the money later – I don't know if in June or even after. 'summer – so this is the reason for these very pressing times ”.
Well, these are at least risky statements.
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The European Recovery Fund is not financed – Commissioner Gentiloni, whoappeared before the Finance Committees of the House and Senate , spent a few words about the very existence of the mythical RF: “The condition is that sufficient additional own resources are collected. Able to repay this debt between now and 2056. The debt that is contracted in these five years on the markets (the common debt, these famous 750 billion) will have a very long maturity and will be repaid over the next 30 years. How do we reimburse it? ". Yeah, how do we refund it? A European digital levy is being studied, but it would be little money and would expose us to the “risk of retaliatory measures by the United States” which, in exchange, want to tax the French luxury multinationals; as well as an adjustment of emissions at the border , but with the risk that they pass through protectionist measures.
On the sidelines, just so as not to leave Draghi any hope, Gentiloni linked the digital levy to an agreement on the global minimum tax : a minimum level of corporate tax of 21 percent, proposed by the US administration. He said: "From our point of view, they must go together, hand in hand: one cannot accept a green light for one without having, at the same time, also an agreement on the other". But, since the global minimum tax "would certainly constitute a problem for some countries of the Union" and, since "the prevailing competence in taxation matters is national", well, there is no mention of collecting sufficient additional own resources.
So, how do we repay the debt of the RF? “Going to ask each country on the basis of the amount of contributions it makes to the European budget”, replied Gentiloni. But with malice. Because he knows very well that the German Constitutional Court of Karlsruhe (following up on the arguments we had analyzed in Atlantico Quotidiano ) just started a judgment on the FR and warned that it will take a long time, that the applicants' arguments do not appear unfounded and that , if the latter were to obtain satisfaction, “it would be up to the federal government, the Bundestag and the Bundesrat to restore the constitutional order with all the means at their disposal”, that is, to dismantle the RF. In other words, the German irrevocable guarantee, on which the FR is based, is only provisionally irrevocable . This is a big problem because, without this guarantee, the bonds issued by the EU to finance it have a credit rating essentially halfway between the French OAT and the Italian BTP.
Even without counting this German non-ratification, it remains that, up to now, some Member States have not ratified at all and the whole mechanism starts from the month following the receipt of the last notification of ratification ( art.12 – decision 2020/2053 ).
Gentiloni then made an indirect reference to the ECB. Speaking of a "recovery that is announced and that will certainly take shape in the second half of this year". Recovery that does not depend on the RF, but on the end of the lockdown : in fact, he added, "it is a recovery at the quality of which this extraordinary European program aims", that is, it has downgraded the RF, from a tool for triggering the economic recovery, to a tool for regulate its quality . Recovery that brings with it inflation: in Germany already growing towards 3-4 percent. Which makes it impossible for EU bonds to be acquired by the ECB, as the ban on monetary financing by states also applies to the Union ( 123 Tfeu ) and can only be circumvented if inflation is well below 2 percent .
In short, whoever wants to buy the bonds issued by the Union to finance the FR, will first question Brussels, more or less with these words: "You cannot tell me that you will reimburse me with the proceeds of European taxes (because they do not exist), nor with the rest of your budget (because you should first undertake to give up the other expenditure items), neither with the irrevocable guarantee of the States (because the German guarantee is only provisionally irrevocable), nor with the money of the ECB (due to prohibition on monetary financing). So, tell me, how is it that you want to repay me? ". This is not a trivial question, given that the payments will be made only "compatibly with the financial resources available" (Art.24 – regulation 2021/241 ).
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The national Recovery Plan is not approved – Even on the day in which these bonds were actually issued and in non-symbolic volume, the same is not at all certain that the money will flow to Italy. Since, in between, it is necessary that the national Recovery Plan sent by Draghi last April 30 is approved: first by the Commission and then, only if the Commission has expressed a positive opinion, by the Ecofin Council of Ministers by qualified majority (here, without restraint of emergency ). The first has 60 days, then the second another 30 days: to approve, or to "formulate observations or request additional information" and agree on an extension of the time limit (art. 19 – regulation 2021/241). Thereafter, the funds can be disbursed "within, as far as possible , two months from the adoption, by the Commission, of the legal commitment" (art. 13 – regulation 2021/241).
Therefore, even if the Commission were to approve the plan Draghi cum in late June, however, the Council would have time until the end of July and the advance could come by the end of September. In fact, the French minister Le Maire spoke of "September". But it would be an extremely fortunate case.
It is no secret that, on the Draghi plan, the Commission has formulated and is continuing to formulate observations and also of substance. And he will have to formalize them, by the deadline of the end of June, who knows perhaps by agreeing with Rome an extension of the submission deadline, in any case informing the Ecofin Council and, with it, the whole world. This, in order to allow Draghi to make use of these remarks to force Parliament to approve reforms without an adequate basis of consensus, except for the bait represented by the great Christian Democrat manger . Il Corriere wrote: "The billions of the NRR, in the logic of give and take, will be the tool that can facilitate Draghi in completing the turning point". A taste was had on Monday, with the Minister of Justice Cartabia chanting: "If we resist the changes, we will miss the objectives that the Commission requires of us … and therefore Italy will have to return the impressive sum that Europe is about to put into the economic and social life of the country… whoever escapes change will have to assume the responsibility of missing such a decisive opportunity for everyone ”. And that's just the beginning.
Draghi was perfectly aware of all this when he told Parliament: “I never said I guarantee , it's not my style”. A short joke that served to deny the evidence that the Commission is not satisfied with his plan, but that it has accepted a political agreement : Draghi was allowed to send it on April 30, in exchange for future observations that, yes, he vowed to respect. How? Well, with the "legislative instruments: bills, proxy laws, decree-laws" of reform, which he intends to pass in Parliament with a beating drum. Counting on majorities that vary from time to time (once more right-wing, another time more left-wing), but always with the same government. With this, making Depretis' transformism pale and definitively reducing the classroom to a brothel, in the sense of a brothel. All before a single penny has come.
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Reforms for reforms – In short, what will remain of the mythical euro billion ? The reforms. In his enthusiasm for a “continuous and systematic work of repealing and modifying the rules that curb competition, create position rents, negatively affect the well-being of citizens”, Draghi shows the innocence of a university student in his first business economics course. Convinced, as it is stated, that “productivity must increase and, at that point , we will have much higher growth rates, we hope, than in the past; which will lead to a decline in the ratio of public debt to GDP ”. A statement that contains a curious logical contradiction, since productivity is the relationship between the product sold and the labor employed: a relationship which, in the absence of growth, cannot increase except by decreasing the work employed, that is by making more unemployed, that is by raising the ratio between public debt and GDP.
Here, there are three cases. The first case is that Draghi believes what he says and that, therefore, imagines that the reforms alone are enough to convince the markets to do the work of the ECB. In case, he is wrong: only with eternal QE does the BTP stand up. On the other hand, these reforms are modeled on the Brussels recommendations, in turn modeled on the IMF recommendations. And the American events show how, even in the country that makes recommendations to the IMF, the markets no longer do the work of the central bank.
The second case is that Draghi imagines that reforms alone are enough to convince the ECB to do eternal QE. Even then, he is wrong: with the economic recovery and consequent inflation, eternal QE is impossible. The recovery represents a risk for him: as it would trigger the end of the ECB purchases and, therefore, the BTP crisis that would transform Draghi into any Monti. Therefore, he does everything to postpone the end of the lockdown … but he can do nothing against inflation in Germany.
The third case is that Draghi is simply determined to win the battle that began 30-40 years ago. And it is not the battle for the Euro, but the battle for reforms. There is a big difference between him and the Piddini : they want the reforms for the Euro, he wanted the Euro for the reforms. For Draghi, the Euro is not the end, but the means. He said to Parliament : at stake "is the destiny of the country, the measure of its role in the international community, its credibility and its reputation as founder of the European Union and protagonist of the Western world" … not of the Euro . Postponed, as we have seen, any disbursement of the RF to September, that is to the German elections, the new Chancellor ( whoever he is ) will demand the only thing that Draghi cannot afford: the end of the ECB acquisitions. Draghi knows that the end of the external constraint is approaching: therefore he accelerates on the reforms and, in fact, he has told Parliament that, if his reforms are rejected, "perhaps there will be no more time". He does not make the reforms for the RF, he makes the reforms for the reforms. He wants to win the battle that started 30-40 years ago. The reforms will be the last dividend of the external constraint. The price that Draghi expects to lead (perhaps from the Quirinale) Italy (perhaps with France) out of the Euro (perhaps in a € south).
Those who want Italy out of the Euro and modeled on the recommendations of the IMF, rejoice. Who wants Italy out of the Euro and modeled on the Constitution, get organized. Whoever wants Italy in the Euro, turn to horse racing.
The post Draghi's battle is not for the Euro but for reforms: the latest dividend from the external bond 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/la-battaglia-di-draghi-non-e-per-leuro-ma-per-le-riforme-lultimo-dividendo-del-vincolo-esterno/ on Thu, 13 May 2021 03:58:00 +0000.