Draghi’s wisdom on Eurobonds
If Europe wants to break that ancillary relationship with the dollar, which strongly conditions it, there are many things to do. First of all, there must be a basically federal structure, and therefore a common budget. As these processes progress, the financial space for issuing Eurobonds may increase.
We hope that at least some of the inconsolable widows of Conte Bis or those who, from the daily fact , launch anathemas, have seen the press conference of Mario Draghi. Above all that they were able to grasp the differences. Two technicians at the stand. But two opposite universes. Draghi's essentiality, Conte's rhetoric. The subtle irony of the first, the seriousness of the second. The safety of those who have long belonged to the international elites. The uncertainties of an outsider, who has the problem of demonstrating hidden qualities. And then the different pedigree. The one banker, the second professor. The economist and the lawyer.
We must insist on this contrast, not to bring out the relative differences. But for hindsight. Given these characteristics, the change of government took place all too late. Had it done before, in all likelihood, things not only in Italy, but in the Union, would have gone differently. And then, if you really cannot expect a public self-criticism, but at least the improvement that has occurred is recognized. And get it over with nitpicking, dreaming of the good weather past.
A necessary premise, before moving on to the things said during a press conference, based only on the questions of the journalists. Which should also have some meaning. We will not deal with everything, but only with the role of the euro. Apparently a problem far from our daily troubles. And instead central to the phase that the entire continent is going through. Just look at Joe Biden's United States to understand the differences.
It is Draghi who recalls the different extent of the efforts made and those that the United States will be able to make, once the pandemic is defeated – at least so it is hoped -. Apparently they are 1.9 trillion dollars against 750 thousand euros of the Recovery Fund. A notable difference, but not so dramatic: the Prime Minister always warns. The system of social safety nets that characterizes the social market economy (which is the prevailing reality in Europe) is very different from the Anglo-Saxon model. If these differences were taken into account, the distances between the two sides of the Atlantic would always be substantial, but not so dramatic.
Why can the US do so much, and the Union much less? This is the point that makes the difference. A difference that could grow in the years to come. But why – this is the answer – the US has the dollar and the Union has only the euro. Because the greenback is an international reserve currency and the euro remains, so to speak, a currency of regional interest. It is valid in exchanges between the various member countries, but when it is necessary to buy or sell on international markets, one must resort to the dollar or the renminbi, if one operates in China.
Actually it is an old problem. It was first analyzed since the 1970s. At that time we were talking about the three great monetary areas, always represented by the dollar, the Japanese yen and the petrodollars. The latter are the result of the large revenues of the oil exporting countries. Then Europe was even weaker. In fact it depended on the German mark. A large earthenware pot, in the geopolitics of the world. An attempt was therefore made to start that long journey (first the monetary snake, then the EMS, then) which in the end, almost thirty years later, would lead to the euro. Which, however, cannot be considered a point of arrival, but only an intermediate stage.
If Europe wants to break that ancillary relationship with the dollar, which strongly conditions it, not so much to claim a sort of "Europe first", but only to achieve an equal relationship, there are many things to do. First of all, there must be a basically federal structure, therefore a common budget capable of guaranteeing the management of the economic cycle, unifying the capital market and proceeding, much more quickly, in establishing the Banking Union. As these processes progress, the financial space for the issuance of Eurobonds may increase. Who need a market, the size of which is closely linked to those changes that mark an optimal monetary area.
As you can see, Eurobonds are not an Italian problem. Even if Italy, like other countries, will benefit from it. They are a European problem. Their issuance will become automatic if the underlying processes, to which we have mentioned, continue. But can Europe continue to ignore them in a world that changes so rapidly? Can it partner with the United States, to face the Chinese giant or keep the right distance from Russia, until the latter has given the necessary guarantees? At the moment it is only the junior partner of Washington, both in the Mediterranean and in the other theaters of global competition. But even to remain so, it cannot continue to lose power. If it doesn't want to be overshadowed by new troubles, like Turkey or Iran.
Draghi clearly grasps the essence of these problems and brings them to general attention, even though he is aware of the difficulties involved in proceeding in the right direction. This is why it speaks of perspective, of the medium and long term. They are a kind of North Star that indicates the route. The steps can be modest, but they need to go in the right direction. Trying to avoid taking impromptu solutions, however ineffective, only for the fear of going in the right direction. As, unfortunately, it often happened.
Can you blame him? Of course not. But if he is right, as we believe he is, there will be no time when it will not be possible to verify how second best solutions, taken for reasons that have little to do with the most linear solution of problems, are more ineffective and costly. And in the end, by dint of making mistakes, the need for a different address will become increasingly evident. If it is true that Europe has grown, especially in times of crisis, in the face of a pandemic of these proportions, we can only hope, crossing our fingers, that leap in quality, which would be necessary.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/la-saggezza-di-draghi-sugli-eurobond/ on Fri, 26 Mar 2021 16:36:56 +0000.