The MES is like Freddie Kruger, the villain of Nightmare on Helm Street: at the end of each movie he was killed by the good guys to return to the next episode, more evil and powerful. Similarly, despite the repeated stops and repeated counter-orders from parliament, it seems that the MES is back in both its health, light and "Heavy" versions, as a reform of the MES as a whole and the introduction of the Backstop for the banking system.
On the health MES we have already said everything and more. Short summary:
- to use the MES it is necessary to make health expenses related to COVID-19. The extent of the expenses, already covered in any case by the debt, are not enough to justify its use;
- why use it when BTPs are safe in interest and now at no cost?
- why use a non-renewable loan, therefore to be repaid on a term basis, instead of an ad libitum renewable one?
for these reasons NO EUROPEAN COUNTRY has used the ESM, but now the French Finance Minister Bruno Le Maire would like Italy to use it. What time? Why doesn't Bruno le Maire learn to mind a lot of his own business?
Because, probably, he wants to distract public opinion and the pentastellati from the real game that will be played at the Eurogroup on Monday 30: in fact on that occasion we will talk about the serious MES reform , that procedure which, started in secret with Tria, is it went on indefatigably despite the votes against by Parliament and the fact that the government almost certainly does not have a majority. However, according to press reports, Gualtieri is preparing to approve it, even if its majority is split. Why? Does it serve Italy to save the Italian public debt? If we read the proposed changes to the treaty we would immediately say NO, in a dry way. Let's take a practical example:
2 Eligibility criteria for a precautionary conditional credit line
Access to a precautionary conditional credit line is based on the criteria of
eligibility and is limited to ESM members who present a situation
fundamentally sound economic and financial and sustainable public debt. Of
Normally, the members of the ESM must respect the quantitative parameters and conditions
qualitative related to EU surveillance. An assessment is made to establish
whether the potential beneficiary ESM member qualifies for a credit line
precautionary conditional, based on the following criteria:
a) compliance with the quantitative parameters of the financial statements . The MES member is not
subjected to excessive deficit procedure and in the two years preceding the
application for precautionary financial assistance complies with the following three parameters:
i) government deficit not exceeding 3% of GDP;
ii) structural balance of general government equal to or greater than
country-specific minimum benchmark *
; iii) debt benchmark equal to a public debt / GDP ratio
less than 60% or a reduction in the differential compared to 60% in the two
previous years at an average rate of one twentieth per year;
b) absence of excessive imbalances . EU surveillance does not detect imbalances
excessive in the situation of the ESM member;
c) historical evidence of access to international capital markets, where relevant, a
d) sustainable external position; is
e) absence in the financial sector of serious vulnerabilities that jeopardize the
financial stability of the ESM member.
So a sovereign state to be able to use the ESM for its own sovereign debt:
- or does not need it, with a debt / GDP of less than 60%;
- or it defaults to reduce the debt to 60%.
Taking the example of Italy, it should cancel a debt equal to 90% of GDP !!!! More than a little thing like 1500 billion. At that point the ECB's proposed debt cancellation measure is a breeze.
Don't be fooled. Those who want the reform of the ESM are not so much the states, especially Mediterranean ones, who are far from it as if from death, but from the German franc banks: in fact, the banking system of these countries is incredibly fragile behind the apparent robustness, so they need of the “SRF” the “Single Resolution Fund” commanded by the “SRB” the single resolution board, to avoid a great, enormous, bank crash. however, first they want to be sure that they do not have any problems with the other contractors, ie the Mediterranean countries. The RPS would also be accompanied by the ESM Backstop for 55 billion. As the Financial Times notes:
Next to this is the SRF, a cash chest that has existed since 2016 and which accumulates money from a withdrawal on the banking system to cover the cost of liquidating bankrupt lenders. This will be supported by an ESM “backstop” for the fund – emergency money in case the cash runs out. The hope is to introduce that backstop two years before the target date of 2024.
But in order to agree on the early introduction of the backstop, northern hawks like the Netherlands, Germany and Finland want to be sure that southern member states have made sufficient efforts to reduce risk and address bad debt in their banking systems. This is doubly sensitive as the euro area is set for a 7.8% contraction in 2020 and officials are preparing for a new period of non-performing loans next year.
They all want the money from the SFR and the "Backstop" guaranteed by the MES, without any intrusion. Italy does not have major problems in the sector, but Spain does. As always, European generosity is nothing more than an excuse for the robbery: for the second time they want to save the German franc banks with Italian money and Gualtieri wants to approve all this without having a parliamentary majority. Now it's time to get out of this madness and get our money back, down to the last cent.
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/mes-lunedi-gualtieri-dara-il-via-fra-le-incredibili-pressioni-dei-francesi-lunione-bancaria-ora-un-frutto-avvelenato/ on Thu, 26 Nov 2020 17:32:39 +0000.