The perfect storm is coming

by Paolo Becchi and Fabio Conditi

The Meloni Government must not underestimate all the knots that are coming to a head in the economy, because apparently different areas are producing very similar chain effects that feed each other exponentially.

Scanning the horizon, a perfect storm is predicted:

1) the ECB continues to raise interest rates and has already begun to reduce QE, for this reason the yields on Italian BTPs are dangerously approaching 5% (don't just look at the spread which is low because even the yields on Bunds Germans are getting up);

2) the energy bills that continue to grow more than other countries and the stop to the sale of cars and petrol/diesel engines involve direct and indirect costs for Italians, who, having a practically stationary income for years, are becoming increasingly impoverished.

3) the blocking of the Superbonus and the thousands of companies at risk of bankruptcy due to stranded tax credits, comes just as the European Union launches the "Fit for 55" plan with which it obliges all our building stock to undergo energy redevelopment, one of the oldest in Europe;

The ECB's action aims to convince Italy to ratify the ESM, with all the disastrous consequences that have already been tested with Greece. The increase in the cost of energy and the replacement of our car fleet serve to fuel inflation and subtract resources from the financial wealth of Italians. The blockade of the Superbonus and the "Fit for 55" plan serve to make thousands of small and medium-sized businesses go bankrupt and to acquire our precious and coveted building heritage with two pennies.

If someone continues to believe that all this is just the result of chance and not of very specific economic and financial interests that have our rich country as their object … well, then let's hope Santa Claus and Superman will come soon to save us.

In reality, it would be better for the Government to urgently adopt an emergency plan to emerge unscathed from the incoming storm based on three main actions: find internal resources, reduce energy and inflation costs and fuel adequate economic growth.

Find internal resources

The procurement of resources can no longer be done through the financial markets, which will no longer be as generous and low-cost as they were today. At best we will pay dearly for the refinancing of the public debt, at worst we risk default and forced access to the ESM.

To avoid all this, a new internal financing tool is needed, the Savings Accounts, which are a free current account where citizens can "park" their savings, guaranteed by the State, stable in value and with a good yield, but also usable as a payment instrument without divesting. In this way, we not only protect and encourage Italian savings, but we can also divert these resources into investments in the real economy rather than in the financial markets.

Reduce energy costs and inflation

Once our public debt has been secured, avoiding the blackmail of the financial markets, the Government should reduce energy costs in a structural way, as France and Germany did, which nationalized their main energy companies, EDF and Uniper, and put a ceiling on the formation of prices in the gas and energy market.

In this way there would also be a reduction in inflation, at least for the substantial part that has grown precisely because of the increase in the cost of energy.

Fuel sustainable economic growth

Finally, there is the story of the blocking of the transfer of the Superbonus tax credit, which shows us how short-sighted the vision of the Meloni government is, which blocked it just before the implementation of the "Fit for 55" plan, which will make it extremely onerous expenditure for the adaptation of Italian properties.

There is a well-founded suspicion that it is a move made on purpose to allow multinational real estate investment companies to come and buy our precious building heritage in Italy at clearance prices.

The solution exists and is concrete and achievable immediately, it is enough to eliminate all the changes introduced by Mario Draghi for the sole purpose of making the circulation of tax credits difficult, so much so that his justifications have all proved to be clearly false:

– building prices have not tripled but have increased in other countries more than in Italy;

– the studies by Luiss Business School and Nomisma have demonstrated an almost zero cost to the State;

– frauds in the Superbonus were only 3% of those alleged.

To release all problem credits in the hands of companies, but also to implement the "Fit for 55" plan in a sustainable way, a tax credit that can be transferred to everyone must be used several times and also have the possibility of carrying over the credit over the years successive without limits.

All this, contrary to what is said, is clearly admitted by the new version of the Deficit and Public Debt Manual, recently updated by Eurostat, which even defines the correct accounting methods.

With an unconstrained circulating tax credit, it is also possible to finance public expenditure for investments in the real economy, without increasing public debt.

Facing a perfect storm

The adoption of an emergency plan of this kind does not guarantee the Government to emerge unscathed from the incoming perfect storm, but it would certainly allow Italy to have the tools to deal with it in the best possible way, limiting the damage and perhaps even succeeding to derive a structural benefit.

From the series "nullum malum quod prorsus omni utilitate careat".

Paolo Becchi and Fabio Conditi

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The article The coming perfect storm comes from Scenari Economici .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-tempesta-perfetta-in-arrivo/ on Sat, 25 Feb 2023 11:57:44 +0000.