Here are the deepest reasons for the crisis of the Draghi government
It is the request (not only of the 5 Star Movement) for a budget shift that also puts the Draghi government in crisis. Gianfranco Polillo's analysis
The quickest was the deputy secretary general of the CGIL, Gianna Fracassi, during the hearing at the joint budget committees of the Chamber and Senate on the examination of the 2022 Economy and Finance Document. It was last 12 April. The resources provided, he thundered, “are however not sufficient to respond to the social emergency that risks penalizing the most vulnerable classes. For this reason, we believe that a further budget variance is necessary ”.
Giuseppe Conte is more introverted, in the letter with his nine points, delivered to Mario Draghi, on 6 July. In which the request for a budget variance was declassified on page 4 and expressed in an almost dreamlike form: "We have asked you several times for a budget variance".
The trade union position during the meeting with the Premier at Palazzo Chigi, on the other hand, is decidedly more precise. According to the agencies, there was a unanimous request to "evaluate by December the need to also proceed with a budget deviation." There being "convergence to tackle this topic together".
Finally, it remains to consider the position of the League, expressed in a rough way by Matteo Salvini: “I have read that Draghi said that there is no need for a budgetary shift, for a heavy intervention. I think the exact opposite. Or you put 50 billion real in the pockets of the Italians, otherwise with micro bonuses nothing can be solved ”.
Who is missing from the roll call? Surely Giorgia Meloni who, being interviewed, prefers to criticize the government's not very incisive and dispersive choices. If the resources allocated so far had been used in the most appropriate way, today the results would be at least partially different. And there would be no need for fancy operations. While the left of the PD does not pronounce itself, even if the connection with Maurizio Landini's CGIL remains very close, in the hope of repeating, in Italy, the French success of Jean-Luc Mélenchon.
In any case, the numbers, although not entirely determined, appear to be sufficient. A large political spectrum, which exceeds the parliamentary majority, also considering the support of the trade union movement, is clamoring for the "budget gap". And since, in a democracy, numbers weigh like boulders, let's make this blessed shift. For once we agree with Giuseppe Conte, Matteo Salvini, Maurizio Landini and all those who, without discovering themselves, march together in this same direction. Let's do it, but let's try to understand in advance what the inevitable consequences will be.
It would simply be a matter of increasing spending net of interest, offering subsidies and refreshments, not covered by increases in revenue, which, on the contrary, considering the proposals put forward on the subject of tax bills, should decrease. The first consequence, therefore, is an increase in indebtedness. That is to say of the public debt. No problem, it can, at least in appearance, be covered by the issue of government bonds. To do this, of course, you will have to pay interest. And here is the first hitch.
The latest Istat data, relating to the first quarter of the year, tell us how interest expenditure, despite the reduction in debt compared to the last quarter of the previous year, had increased. Passing from 3.5 to 3.8 per cent of GDP. Little thing could be objected. If this small jump had not led to a sharp fall in the value of securities, burning part of the savings of Italians. To get an idea, the “future BTP, expiring November 2028”, purchased on issue, without commissions, at 100, is now worth just over 89. With a capital loss that exceeds 10 percent. Therefore, the inflation rate is 2 points higher.
It goes without saying that by further increasing the supply of securities, these losses can only increase. Reflecting on the whole market. Infecting the bond sector as well, as the various segments are interdependent. Currently, the spread with the German Bund is almost 212 basis points, but only a few months ago it reached and exceeded 250. As a demonstration of how problematic the relative curve can become, which impacts on a stock of public debt destined to grow, at a time of great volatility.
The latter, the debt, remains the problem of problems. As is well known, the main central banks, especially the FED and the ECB, are now determined to counteract the inflationary development, operating on the structure of the reference interest rates, which are destined to rise. However, the differences between the two sides of the Atlantic are profound. Beyond the different economic profile, there is the physical proximity of the war in the tormented Ukraine, the greater European dependence on gas imports from Russia, but above all the fact that the Eurozone, unlike the USA, is not an area optimal currency.
Overall weaknesses that have produced, for the first time, in many years, a strong devaluation of the euro against the dollar. Today in a draw: "one to one". Europe will thus be favored in terms of exports, but penalized in terms of imports of raw materials and energy products, which are traded in dollars. It follows that European domestic inflation can only be destined to rise.
It says (on the left) no problem. "In the current macroeconomic framework, – it has been theorized – the feared alarm of a price-wage spiral, which the Italian government shares, appears unjustified because the inflationary increase is determined by the higher costs of energy goods and not by a growth in request". Wrong analysis: the stagflation of the 1970s, on the other hand, had precisely those characteristics. Which are destined to repeat itself in the case of a strong increase in the wage bill.
The most delicate point is the second. The monetary policy of the ECB is less efficient, due to the fragmentation of the market and the different fiscal policies followed by each country, especially when the rules of the Stability Pact were suspended. In general, decisions are made by the European Central Bank, looking at the average conditions of the single market. But if the latter are not uniform, varying according to the characteristics of each member country and the policies adopted by them, then the same policy can be too penalizing for some and too permissive for others. The dynamics of spreads should be the signal of these divergences.
Can this be remedied? In part, thanks to a discretionary intervention by the ECB in the purchase of securities on the secondary market of the countries most in difficulty. But these actions cannot lead to the simple monetization of their debt. Practices prohibited by the Treaties. Those interventions, in other words, can only be justified in order to reduce the watertight bulkheads of the individual national markets, barriers destined to grow if the public finance rules, in turn, tend to diverge. And by diverging, they make it more difficult to achieve the compromise that is indispensable for setting up such a policy. The lack of which is destined to penalize above all a country, such as Italy. Despite the international prestige of Mario Draghi.
As can be seen, the contraindications to a policy centered on achieving a "greater budget gap" are anything but trivial. The former central banker is aware of this and is therefore determined to resist. Aware that nemo tenetur ad impossibilia. The repeated intention of abandoning the helm of the government in the event of a crisis should give us pause. Making the tare to the thousand tactics fielded by all political forces, in view of the next elections. However, these are only the external aspect of a phenomenon, much more worrying, marked by the lack of a sense of collective responsibility, which should be the essential ingredient to face what could be, in perspective, one of the hardest winters in the world. recent history not only in Italy.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/primo-piano/ecco-le-ragioni-piu-profonde-della-crisi-del-governo-draghi/ on Thu, 14 Jul 2022 04:18:58 +0000.