Here are all the unknowns on the Italian economy
The Italian economy amidst the optimistic emphasis of the journalists, critical factors (expensive energy in the first place) and scenarios full of unknowns (ECB, Mes and more). Giuseppe Liturri's analysis
The Istituto Luce-style propaganda climate that followed the release of the latest data on GDP growth in 2021 lasted less than a week. A robust + 6.5% compared to 2020, presented as a triumph, forgetting that there is is in the middle of -9% in 2020 and therefore, compared to the whole of 2019, we are still down by 3.1%.
It was enough for the German Finance Minister Christian Lindner to make a quick passage to the room of his colleague Daniele Franco on Friday to bring everyone back to reality. The repetition of old mantras such as " the debt must be reduced to build new fiscal reserves for the next crisis" and the observation that "even though we are starting from very different situations and with very different visions of economic governance we are looking for common solutions ", are the equivalent of the bell sounding at the end of recess appeared. A meeting which – which came only 17 days after the two ministers had spent almost two days together in Brussels, engaged in Eurogroup and Ecofin meetings – suggests that new facts have arisen which it was necessary to immediately discuss personally. Persistent and no longer transitory inflation, a change in the ECB's monetary policy, reform of the Stability Pact, implementation of the NRP and completion of the Banking Union, are in fact a wrist-shaking agenda.
And so between Saturday and Sunday we witnessed a sensational turnaround in the story of the magnificent and progressive destinies that await our country this year. Federico Fubini began on Saturday in Corriere della Sera and continued on Sole 24 Ore on Sunday, with tones unimaginable only a few days ago. Fubini suddenly realized that inflation is not so transitory and is already biting household consumption and business margins, the ECB cannot continue to buy all Italian government bonds and Lindner has come to remind us that the Pact of Stability in the best of cases will undergo "cosmetic" changes. Imagine the bewilderment of the Corriere reader in passing, in a few days, from Italy, the locomotive of Europe in search of a backup plan to withstand the impact of these events. This plan is the PNRR, " the only way to put Italy on a more solid trajectory ". Yes, the very plan that the Parliamentary Budget Office (Upb) has also admitted will produce a GDP 2.5 percentage points higher than the base scenario by 2026. A macroeconomically irrelevant datum, to keep to the definition of the economist Luigi Zingales. The "more solid trajectory" of which Fubini speaks, however, is not reflected in the recent note on the situation of the UPB, according to which " in 2023 the GDP would continue the gradual path of normalization, slowing down to 1.9 per cent, also due to of the less expansive tone of economic policies ". We could not have found more effective words to explain the modest growth that awaits us, despite the NRP.
If this is the (falsely) salvific plan, concludes Fubini, then it is necessary that the parties do not allow themselves to object to anything and rather “give a hand to Mario Draghi to carry out the only plan we have and can put us in safety”. " Do not play on the pianist ", is the final admonition. To add to the dose, Il Sole 24 Ore arrived which darkened the Sunday of the Italians, with the title in the first place " Dear energy, industry in decline" . It took a few weeks, but a scenario already in place and foreseen by economists has finally arrived on the front page: an exogenous supply shock such as that deriving from the restrictions following the pandemic and the abrupt and massive rise in gas and electricity prices. generally translates into a contraction of production and demand accompanied by higher inflation. The first data relating to January, anticipated by the Bank of Italy and the Confindustria Study Center , confirm this reality: the country is in full slowdown and industrial production should be -1.3% compared to December.
In this complex game, the entry into the field of the ECB is becoming more and more probable, within which the pressure of the countries of Northern Europe is getting stronger. Just six weeks ago, Christine Lagarde declared that she considered a rate hike in 2022 " extremely unlikely ". inflation at 5.1% in January and in any case insisted on the forecast of a return by the end of the year of these tensions. Furthermore, it is convinced that it can control the increase in the spread by using flexibility in the reinvestment choices of maturing securities. The markets did not believe her – starting from Thursday afternoon the sales of Italian bonds and bringing the yield of the ten-year BTP to touch 1.90% with the spread at 165 on Monday – and all this took place in the religious silence of those who, in other times, he did not miss the opportunity to start on the spread that "squirts" or "rears up".
But even her colleagues no longer believe in Lagarde. On Sunday the Dutch Klaas Knot , a member of the ECB's board of directors, broke the delivery of silence, declaring that the purchases of securities must end as soon as possible and that the increase in rates must take place as early as the fourth quarter, followed by another increase at the beginning of 2023. An operation that would make sense in the UK and the US, struggling with demand overheated by massive public budget incentives, but which is very dangerous in the eurozone.
From Monday afternoon until the whole day of Tuesday, it was all about throwing water on the fire. At first there was no lack of harsh criticism of Lagarde's work, accused of lack of clarity and of having disoriented the markets. Then the President of the ECB partially adjusted the shot at the hearing in the European Parliament, curbing the spread and yield run of the BTP. Finally, on Tuesday evening, the governor of the French central bank, Francois Villeroy de Galhau, arrived to be a firefighter talking about the overreaction of the markets.
Faced with these unknowns, here it is all a rush to armor and " save soldier Draghi ". Fubini's message is coupled with that of political scientist Sergio Fabbrini on the Sun : the electoral appointment by 2023 must not disturb the " continuity and coherence of the PNRR " and therefore " innovative ways to reduce the divisive impact of the elections " must be found of 2023 ″.
In Europe they are aware of the coming storm and have already prepared the rescue donut (of their interests) which could be called Mes with contextual debt reduction at any cost, and they do not like local political interference. Their plan must be carried out without a word and they send it to say, without mincing words.
We only dare to hope that the " innovative ways " that Fabbrini sought are not those already seen at work in the course of history. With the single party, we have already given in this country.
(updated and integrated version of an article published by the newspaper La Verità)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-tutte-le-incognite-sulleconomia-italiana/ on Wed, 09 Feb 2022 09:09:08 +0000.