Because the Mes must be refounded
Government and Mes. What to do? Facts, opinions and insights
It will not be an easy day for Minister Giancarlo Giorgetti today in Brussels. In fact, the Eurogroup's agenda reads: “Status of the ESM Treaty ratification process”. And, having reached that point, this afternoon there will be no room for beating about the bush and pretending. Either in or out. Either we keep the point of opposition to ratification, or a bill will have to leave Palazzo Chigi, addressed to the Chambers for approval, concerning the ratification of the Treaty according to the text signed by the Conte 2 government in January 2021.
THE MELONI GOVERNMENT LINE
The signals received in the last few hours from government circles do not seem to be encouraging for those who, as I write to you, have been pointing out for years the uselessness (at best) and the harmfulness of both the reformed text to be ratified and the text currently in force.
President Giorgia Meloni no longer appears so firm in rejecting an instrument that belongs to another geological era. In fact, “ hoping for corrective measures to improve it ”, as declared on Thursday, after having received the new general manager Pierre Gramegna and the secretary Nicola Giammarioli means placing oneself even more in the corner with respect to the pressing requests arriving from Brussels and Luxembourg. Even worse is throwing the ball to Parliament which, although formally vested with ratification, is nonetheless awaiting a government-initiated bill. Which, once incardinated in the Chambers, will only receive the favorable vote of the parliamentary majority that supports Meloni. A different outcome does not seem to be admitted, with a Parliament rejecting a government-initiated bill, which would sanction the end of the government.
In short, the line of defense constituted by the proposed correction – admitted and not granted that the other partners agree, but there are only closures in this sense – appears rather weak and similar to a logical short circuit. In fact, what would be the point of having Parliament ratify an instrument that is deemed in need of corrective measures and, for this reason, useless if not harmful? If one is truly convinced of the legitimacy of the observations, it is reasonable to hypothesize that the Italian government would have much more bargaining power in asking for discussion now, with the reform not yet ratified, than tomorrow, with the reform ratified. When we would only pick up on the proverbial " after the party, cheated the saint ", addressed to those who trust promises too much.
It is perplexing that the honorable Giulio Tremonti is also attested on this line who a few days ago in an interview with Sole 24 Ore, underlined that "G iorgia Meloni essentially said that she sees no alternative to the Italian vote on the Mes, and that but intends to re-discuss its function. I totally agree with her."
WHAT GIAVAZZI SAID ABOUT THE ESM
Yet the arguments to oppose the ratification of the Treaty are numerous and should induce the government and the majority to stick to the point together. Paradoxically, it was Professor Francesco Giavazzi himself – until October he listened to Mario Draghi's advisor at Palazzo Chigi – who provided arguments against the current and reformed Mes.
The first broadside launched against the main function of the Mes, which is to provide loans to countries with difficulty accessing the markets. "Asking for help from the Fund means admitting that that country is no longer able to finance itself on the market: a sign of weakness that could unleash speculation," Giavazzi stressed. The ESM reform would make access to those loans even more damaging to our reputation on the markets. In fact, we would be denied access to the precautionary credit line, subject to admission conditions so stringent and obsolete as to force us to use the credit line with enhanced conditions. The one with the Greek-style adjustment program, so to speak. With Athens forced to sign two memoranda of understanding with 2941 and 1602 conditions, aimed at bending even the most microscopic details of economic and social policy to the will of the Luxembourg creditor.
To this should be added the analysis of the sustainability of the public debt, carried out in advance by the Mes to be ready to assist the requesting countries. An instrument with high discretion and therefore with a high risk of sowing panic on the markets, even before the decision to request a loan is made.
But Giavazzi also had some feelings towards one of the main innovations of this reform: the loan to the bank crisis resolution fund. “ A fund like this, with large but not unlimited resources, cannot stem a banking crisis. To stop it, the State, or one of its funds, must be willing to use unlimited resources (whatever it takes). If resources are limited, speculation will prevail” . Impossible to say it better.
THE MONTH MUST BE REFUNDED, NOT REFORMED
These should be non-negotiable findings. An impassable red line. Instead, the dangerous slope on which the government seems to be heading is that of becoming ensnared in the usual package logic that dominates European comparisons. As can be clearly deduced from the interview with Minister Antonio Tajani which appeared in the Corriere della Sera . Giving way on this dossier should allow us to obtain adequate compensation on many other open dossiers, starting with the reform of the Stability Pact, ending with the revision of the PNRR. But – assuming and not granted that the ratification of the reform of an ESM, to be reformed immediately afterwards, makes sense and can have worthy counterparts – the times do not coincide. We would pay "coin" today, and see no "camel" tomorrow.
A "lunar" debate for a country whose debt, after the decomposed verbal aggressiveness of the ECB in December and the consequent tensions on interest rates, has been experiencing a honeymoon with investors since the beginning of the year. In just a few days, demand caused the 10-year BTP rate to fall from the highs of 4.7% in December to just under 4% and the auction of the new 20-year BTP, placed at a rate of 4.53%, seen requests equal to about 4 times the offer of 7 billion. Spread at 184, low in the last six months.
In the face of these numbers, just talking about Mes constitutes damage to Italy. The Meloni government, regardless of the pre-election promises, has the strength and courage to convince the European partners to archive an old instrument to be refounded or liquidated, not reformed.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-il-mes-va-rifondato/ on Mon, 16 Jan 2023 09:46:47 +0000.