Il Mes, blackmail and the frenzy of the Sole 24 Ore
What Buti (until April chief of cabinet of Commissioner Gentiloni) and Vitali sul Mes wrote and what they didn't write. Giuseppe Liturri's comment
Ask a question, give an answer. Yesterday's article in the Sole 24 Ore ("it's time to ratify the MES, and create the conditions to never resort to it"), signed by Marco Buti and Giampaolo Vitali, seems inspired by this famous phrase by Gigi Marzullo.
With the essential clarification that the two authors ask themselves the questions (some of them wrong) that they like, mistaking them for "doubts" about the Mes, and they don't even get the answers right.
To remove any doubts, today in the Corriere della Sera Senator Mario Monti defined the article under comment "an objective and exhaustive analysis that every parliamentarian should read carefully".
Strengthened by this "authoritative endorsement", we proceed in order in this veritable museum of horrors.
To affirm the end of the connection between the ESM and the season of austerity, which is moreover lightly declassified as an unfortunate mistake, Buti and Vitali affirm that now it is different, since "Europe has learned from the financial crisis". And what did he do? It created the common debt with the NextGeneration EU, according to them. Not at all, the NGEU is an insignificant turtle (just 150 billion lent to the States after almost 3 years of discussions). It was the ECB , which today holds no less than 720 billion in Italian public securities, that took the field and kept the Eurobarack standing.
Not satisfied, they border on factual error when they state that “the new Mes Treaty has provided for the creation of precautionary interventions precisely to avoid its intervention only in conditions of manifest crisis. In this case, conditionality is much lighter, precisely to avoid the perverse consequences of austerity”.
We startle in dismay in the face of so much "imprecision". In fact, precautionary interventions are also allowed by the current text of the Mes Treaty, therefore no "creation". On the contrary, the reform makes access to the precautionary line much more burdensome, raising the bar of the conditions of access (the infamous attachment 3) and slams many countries (Italy in the lead) towards the credit line with enhanced conditions, the one where the austerity of the Memorandum of Understanding. Other than the end of the link between Mes and austerity. The reformed Mes enhances austerity. This is not a matter of having different opinions, but we read astonished of the enormities equivalent to affirming that the Sun revolves around the Earth.
The journey continues by reading that it is true that the "Mes helped German (and French, ed.) banks during the major financial crisis", allowing the Greek government to have funds to service its public debt held by Franco-German banks, as well as supporting Greek banks gleefully financed by the Germans and the French. But even this, for the authors, is not a defect of the Mes but a virtue because they have the audacity to argue that the Greeks should be grateful for this, because it has prevented Germany from asking for "homework", i.e. still more austerity. In short, the merit of the Mes is that of having brought Greece to its knees, rather than ending it with a blow to the head. Judge for yourself.
A precise figure finally arrives when Buti and Vitale point out Italy's veto power in emergency decisions (i.e. those in which the Mes should be useful for something) with its 17.7% of the capital. It is a pity that in all the other decisions, with 17.7%, Italy weighs little or nothing. But then they plunge back into the dark when they blame the “intergovernmental institution” nature of the ESM to explain why all states have taken Sure loans but none have used the ESM pandemic credit line. According to them, the conditions were "basically the same". Evidently the Member States were all of a different opinion and not for the reason set out in the article.
But the pearls are not finished. With regard to "debt restructuring as a condition for obtaining the loan", we are at the reversal of reality. The authors agree that there is a precautionary loan "on very favorable terms in terms of conditionality". It is a pity that, by their own admission and as previously written, access to that loan is allowed to countries "that respect European fiscal rules", moreover subject to reform in recent months, i.e. practically none at the moment. By contrast, the loan with enhanced conditions includes the risk of restructuring, to make the public debt of the unfortunate country sustainable. They set out to demonstrate the absence of restructuring risk and ended up demonstrating the opposite. A decent own goal.
Continuing, he reaffirms the lesser evil theory regarding the "tears and blood" reforms that the markets would impose on the member state to underwrite its bonds, in the event of loss of access to the markets. Assuming and not granting that it is true (the markets do not dictate reforms, they want financial stability and that is the ECB to do its job), this is a strange theory to justify the Mes: we amputate your limb and leave you on crutches, but thank you that we don't cut you two and you end up in a wheelchair.
The authors correctly specify the cases in which the Mes could be accessed, i.e. those of a State forced to pay very high interest rates or without access to the market. In this case, the benefactor arrives to finance at "significantly lower rates". It is a pity that our people do not dwell on the load of conditions that accompanies those rates that are only nominally lower, such as the position of privileged creditor of the Mes. The Mes gives nothing away and the rates are lower only because it has more guarantees and less risk than a normal lender. The Mes costs less because it buys less risk. It is the ABC of finance, which each of you can verify when the bank asks you to pay a lower rate for a mortgage loan than an unsecured one.
Thus we arrive at the final high note.
Buti and Vitali believe that setting the ratification of the Mes as a condition for obtaining concessions on the reform of the Stability Pact and the completion of the banking union is "largely illusory".
They believe that it is even "self-harm" not to ratify "since Italy is commonly included (when? By whom? Nda) among the countries that could potentially be more likely to access the Mes". But in the end this is the clamorous admission of the link between ratification and access to the Mes, which instead the authors would like to deny, at least in the title. We have to ratify it, because we could be the first to use it. We could not have read a more complete confession.
Ratifying, according to them, would be "an injection of confidence that would have favorable effects on the other European tables". But this is only pious wish, however denied by the facts and by the history of the European negotiations. Not even towards children is this puerile cheap pedagogy used anymore (“behave yourself and I'll buy you ice cream”).
The recent history of the (incomplete) banking union is there to show us that we have always swallowed the bitter pill but the sweet never arrived.
In conclusion, in order not to access the Mes, it is enough to make reforms (for growth, obviously…) and achieve primary budget surpluses (the famous expansive austerity that fights and lives with us). But if something goes wrong in applying these failed economic policy prescriptions, then there is the Mes. In fact, it doesn't make a fuss. If you are administering poison, it is normal to be prepared to rush to the hospital.
But this is almost a detail, because the last few lines finally get to the point. There is a problem of trust in us from other states, because it seems that we are not respecting the pacts. But then, we object, what are there to do the ratifications by Parliament? And blackmail is revealed: it is not us who do not ratify the Mes because we also want to negotiate on other dossiers, as hypothesized by the authors. The message that the article delivers is that they want this sacrificial ritual from Brussels to allow us to access (how? When?) "the possibility of extending the horizon of reform of the Mes" (but then what is this reform for, if we have to do another immediately after?) and complete the banking union and the fiscal rules of the eurozone”. The third installment of the PNRR – for months prey to continuous raises and requests for further information from the Commission, when everything seemed resolved by now – is there to demonstrate who is blackmailing and who is being blackmailed. And it is not the first time that the thesis has leaked from Brussels that without ratification of the Mes, everything will be blocked. The Italian Republic is the object of vile blackmail and should clearly answer that the only good reform of the Mes is the one that provides for its liquidation. It is we who should lose faith in European institutions that act in this way.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/il-mes-i-ricatti-e-la-frenesia-del-sole-24-ore/ on Thu, 25 May 2023 07:41:38 +0000.