Because with the ICB of the ECB there can be no independent economic policy
Here are the effects of the conditions imposed by the ECB for access to the new instrument (Tpi) for the purchase of government bonds of member states. Liturri's analysis
With the conditions set Thursday by the ECB for access to the new instrument (TPI) for the purchase of public securities of the member states, we can say and demonstrate "per tabulas" that the circle has been definitively closed around any hypothesis of independent management of the economic policy of our country.
It has long been known that, on their own, threats of infringement procedures due to excessive deficits or macroeconomic imbalances did not represent an effective deterrent for countries such as Italy – which, since 2012, despite doing austerity, did not do enough – or France. , which is precisely … France.
But what was announced on Thursday 21 July shouldn't sound like a surprise at all. It is only the natural completion of what has already begun with the Recovery Fund, which constituted a formidable opportunity to provide a first mechanism of effective punishment for countries that refuse to align themselves with the rules conceived between 2011 and 2013, in reform and strengthening of the 1997 Stability Pact. Now Christine Lagarde and her board of directors have definitively made compliance with the rules of eurozone economic governance an essential requirement for any national government.
The initial stage dates back to February 2021, with the regulation governing the RRF which had already revived all the old tools, recalling them in article 10. Where it is established that it is sufficient for the Council to adopt a decision for excessive deficit, to allow the Commission to initiate a request for suspension of commitments or, in the most serious cases, of payments of the Rrf. This power of the Commission can be exercised pending an excessive imbalance procedure which has not been followed by a corrective plan or the execution of corrective actions or, again, in the case of non-compliance with a macroeconomic adjustment program.
In short, the meshes of the network had already been well reduced. Then on Thursday the exits of the trap were closed. The ECB first set a general entry condition for the use of the instrument: the presence of unjustified market turbulence that jeopardizes the transmission of monetary policy. Taking an example referring to the recent past, if investors sold Italian securities with both hands because someone appeared on the balcony of Palazzo Chigi exulting for a few more decimal points of deficit, that would be a turbulence that is not worthy of intervention. But in order to intervene, the ECB will have to verify that the recipient state of the purchases suffers a worsening of the financing conditions without this being justified in light of the country's economic fundamentals, which remain healthy. And to clear any interpretative doubts in this regard, here in Frankfurt they saw fit to throw the ball into the field of the other European institutions (Council, Commission and Eurogroup), referring to the rules of economic governance that they themselves have not been able to enforce for about 10 years. A "blame game", commented Martin Sandbu in the Financial Times . The purchases by the ECB will benefit the states that demonstrate that they are pursuing a solid and sustainable macroeconomic and fiscal policy.
In essence, the ECB has arrogated to itself the right to establish when an unwanted increase in the spread is "self-inflicted" (perhaps due to failure to comply with a reform requested by Brussels) or caused by forces independent of the will of the state involved.
And in order not to leave room for too many interpretations in establishing the meaning of this general requirement, from Frankfurt they dropped the 4 axes of the eligibility criteria that should attest to the soundness and sustainability of fiscal policy. The first and second require that the state not be subjected to a procedure for excessive deficit or macroeconomic imbalances, or to have failed to take corrective action following a Council recommendation. The third is a public debt sustainability assessment carried out by the Commission, the ESM and the IMF. The fourth refers to the sustainability of macroeconomic policies which is measured through the fulfillment of the obligations assumed with the PNRR and compliance with the Commission's country recommendations. The ECB points out that once the TPI has been activated, it could subsequently be assessed that the tensions on rates are attributable to the country's bad fundamentals and therefore could cease purchases, leaving it to its fate.
The ECB promises to open the umbrella when it is unlikely that it will be needed, because it is difficult (though not impossible) for markets to decide to sell the government bonds of a state with sustainable debt. They will do so when they have doubts, but in that case the ECB will not be able to intervene because the aforementioned eligibility requirements will not be met. A true paragraph 22: "Whoever is crazy can ask to be exempted from flight missions, but whoever asks to be exempted from flight missions is not crazy".
"Will it serve Italy?" They wondered in the Financial Times and the answer is creepy down the spine for anyone with government responsibility: the ICC won't help if, for example, the new government refuses to carry out the reforms agreed under the Recovery Fund . To then add that, if the ECB believes that investors are selling BTPs because they are worried or disheartened about the new government's economic policy choices, the ECB would not intervene.
In short, an empty shell or a formidable blackmail weapon that the ECB formally allows to be loaded by the European economic governance rules defined by the other institutions, but which it then reserves the right to use with ample margins of discretion.
This is not surprising. This is only what is allowed by the Treaties and, above all, by the numerous judgments of the Court of Justice that arrived from 2016 with reference to the OMT program of 2012 and APP launched by Mario Draghi in 2015. All judged to be consistent with the Treaties, but with such and many stakes that today the ECB can only dish out this meager ration.
And that the ECB is " the only sheriff in town " when it comes to spreads is now a fact consigned to history. Observing the data of the last few years, the peak of the spread that occurred in the last months of 2018 coincides precisely with the months in which the purchases of the ECB had almost completely stopped and had consequently also led to a slowdown in the issuance of bonds from the intimidated government Italian. Conversely, since the spring of 2020 the purchases of the ECB have often exceeded the pace of the significant net issues of the Mef and the spread has remained at historically very low levels for a long time.
Faced with such evidence, it is appropriate and desirable that Italian citizens have the answer to a simple question: given that these rules are in fact equivalent to an Italian commissioner and inhibit any choice of economic policy that differs from the wishes of Brussels, whoever candidate to govern the country, does it intend to adapt in silence or does it have alternative proposals? Anyone who comes to the government will have to have an answer, even if it is placed in an intermediate position between the two extremes indicated and not necessarily made known in advance. As long as there is.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-col-tpi-della-bce-non-ci-puo-essere-una-politica-economica-indipendente/ on Sun, 31 Jul 2022 07:10:19 +0000.