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I’ll tell you about the confusion of the Treasury on maneuver, Recovery and debt

I'll tell you about the confusion of the Treasury on maneuver, Recovery and debt

Giuseppe Liturri's point on Recovery Fund and beyond

An important week has just passed to understand the fate of the instrument for economic recovery (Next Generation EU) that the leaders of the EU countries outlined in the political agreement of 21 July. After two months in which we were vox clamantis in the desert , finally also in the big press – until yesterday praising the magnificent and progressive fate of this instrument – a bath in reality has begun that is causing the cold thrill given by inconsistency and fragility of the entire construction of the Next Generation EU (NgEU).

At the same time, the Minister of Economy Roberto Gualtieri is grappling with the Update Note to the Document of Economics and Finance (Nadef), which should outline the macroeconomic scenario underlying the 2021 budget law. He should have presented it by 27 September , but it is not sure that it will even happen on the occasion of the Council of Ministers convened for Monday 5 October. We must understand the difficulty in which we are debating: there is no certainty about the projects that could receive EU subsidies or loans, which can only be formally submitted from 1/1/2021 and could take up to 3 months to the final approval of the EU Council; moreover, after noting that the loans will certainly increase the public debt, like any other BTP, it is not even sure, until Eurostat is pronounced, that the subsidies are out of net debt. It should not be forgotten that the reimbursement of EU bonds is still guaranteed by the higher contributions of the Member States and the taxes of their citizens, and the precedents are by no means reassuring. The money that will come through the subsidies is still debt, with the aggravating circumstance that, if we fail to exploit all the subsidies (65 billion of the RRF), we would still be called to contribute to the repayment of the total debt with our share of 13%, regardless of the distribution of the benefit among the Member States.

The summary of the difficulties was provided by the minister himself, last week in a parliamentary hearing, stating that " the Nadef this year is a complex exercise ". In fact, in via XX Settembre they are working frantically to find spending laws already included in the trend net debt (which thus would not increase) to be financed through European funds, rather than resorting to the government bond market, which, however, at the same time manage to overcome the very narrow selection grid prepared by the Brussels bureaucrats. An inextricable maze, which leads us straight to the first major flaw of the NgEU: as Federico Fubini finally discovered in the Corriere della Sera on Wednesday, the additional expenditure generated by the fund will be clearly less than 100 billion. It is very likely that the Government will limit itself to inserting in the 2021 budget only higher expenses financed by subsidies that should not increase the deficit and reserves the right to resort to loans only to finance expenses already in the budget. But this dramatically collapses the macroeconomic impact of the NgEU, for the purposes of which only the additional expenses count, since very modest sums will contribute to reviving the 2021 GDP. In a few weeks, the 209 billion has melted: 127 are loans that it is better not to mention, not even so as not to increase the debt yet; the 64 billion subsidies of the device for recovery (RF), although hopefully committed between 2021 and 2023, will be paid extremely slowly (only 7% in 2021 and 22% after 2027); the other 15/16 of subsidies are split over other instruments still on the high seas. Does anyone really believe that payments from the EU in 2021, well below 1% of GDP, could constitute that epochal turning point announced urbi et orbi for months to relaunch our economy?

Excessive confidence placed in this initiative is beginning to falter also in the light of the difficult negotiations underway in Brussels. The stunted qualified majority (with 9 votes against) with which the Committee of Ambassadors to the EU (Coreper) adopted on Wednesday a draft regulation on the rule of law that will be negotiated with the European Parliament next week is just the tip of the iceberg . Numerous expenditure regulations will have to be approved by December, among which the most important is that on the RFF, to be approved by a qualified majority of the Council and the European Parliament. Then there is the 2021-2027 budget of 1.074 billion, for which, however, the unanimity of the Council and the majority vote of the legislative assembly in Strasbourg are needed. Finally, there is the decision on own resources, the most important because without it the Commission will not be able to borrow on the markets for 750 billion and grant subsidies and loans. This decision must be approved unanimously by the Council and ratified by each Member State. By comparison, the US Marines would have preferred to face the Vietcong in the swamps of Vietnam. And the words of the German ambassador to the EU, Michael Clauss ("The program continues to be delayed. Already now, delays with consequences for Europe's economic recovery will most likely be inevitable") are proof of the difficulties and, at the same time, time, of the strength with which Germany is tightening the timing of the confrontation. It would be too serious a setback for the Council, whose presidency is Chancellor Merkel, to fail to respect the times.

The three pillars listed above, despite having different paths, are all held together and are negotiated in a package logic in which each State defends its rights and interests. After weeks of superficial optimism, Gualtieri discovered that making these funds conditional on compliance with the country recommendations of the European Semester means reintroducing the currently suspended Stability Pact from the window and that " exhaustive " discussions – if even a single state has concerns about the achievement of the objectives of the RFF by another beneficiary state – could slow down payments considerably.

We hope that this awakening is not late and that the need to act quickly (we still remember the haste that led to the approval of the notorious bail-in, well witnessed by the late minister Fabrizio Saccomanni who spoke of a climate of veiled threats to Italy ) don't force us to swallow the usual bitter morsels that come from Palazzo Berlaymont. Because this appears to be the most probable outcome: it will close one minute before midnight as no country can afford to end up being blamed for the delayed, or worse, failure to disburse funds and will therefore operate the brake a meter before the abyss, maximizing its negotiating position. Who has everything to lose is our country, which could be forced to accept downward compromises hidden in the thousand folds of regulations that are not "enforceable", as they are hastily defined, but are a legislative act of primary importance, immediately enforceable in all the EU countries. Without them, NextGenEU would not legally exist.

All these doubts received only further confirmation after the European Council of 1 and 2 October. Officially, foreign policy, the single market, industry and digital transition were discussed, but it is obvious that the stone guest was the Recovery Fund. The President Giuseppe Conte had already focused the problem well on the eve, declaring that " I am not worried, after what has been done it is not possible not to proceed quickly ". He was even more explicit after the meeting, noting that " The Recovery fund cannot be altered or delayed , no one can afford to do so and Italy will not allow it […] It is absolutely impossible to question a political commitment undertaken when all Europe was watching us. No one today can and must afford to question a political commitment made at 27 ". Conte reiterated that " our citizens cannot contemplate at all technical discussions that could delay the Next generation Eu ".

Words that accurately describe, better than any synthesis, the "cul de sac" in which our country has ended up.

Ever since the April 23 Council, when leaders entrusted the Commission with the task of devising a plan for recovery, our government has invested enormous political capital in this instrument. Nor did he take a more cautious attitude on May 28, when Ursula Von der Leyen presented the Next Generation Eu and the reading of the draft regulations, full of almost halter conditions, should have suggested a more prudent negotiating strategy . The over-the-top exultation with which the agreement of 21 July was then greeted , which should have been realistically welcomed with a good dose of skepticism, further raised expectations and increased the detachment from reality.

Now we find ourselves less than 90 days after 1/1/2021, the date scheduled for the entry into force of the regulation governing the NGEU and the earliest date for the formal sending of the national recovery plans (to be sent at the latest by April 30), and all the rules that should govern this complex package are still on the high seas. And without rules in the Official Gazette of the EU, it will not be possible to present national plans for recovery and no one will see a cent.

Commissioner Paolo Gentiloni on Friday described the delicacy of the moment and confirmed that everything, for a change, is in the hands of the German presidency of the EU Council, which "is working very hard with the Parliament for something that has never been done, having a common debt for objectives across the EU. It is not normal, but extraordinary. I trust that we will be able to approve this relaunch plan at the end of April 2021 ″ .

Everything is placed in the mediation capacity of Angela Merkel protagonist on Friday of a curtain with the President Conte who, approaching ready to greet her with the touch of his elbow, saw the Chancellor make a quick leap backwards, aimed at avoiding close contact . Merkel must protect her health to succeed in a titanic effort: to unblock the ongoing stalemate between the Council and the European Parliament on the ordinary budget of the next seven-year period 201-2027, on the decision on revenues to finance the repayment of the NGEU bonds, and on the regulations (among which the protection of the rule of law and the NGEU stand out). However, the emphasis given these days to the alleged opposition of Poland and Hungary on the subject of the rule of law is perhaps too much. The real dispute is that of the future revenues of the EU, without which nothing starts and on this point those who oppose new taxes are the countries where aggressive tax planning is welcome, such as Holland, whose Premier Mark Rutte has the veto of its own Parliament has already been threatened . Poles and Hungarians are on the move. Our country can only pursue and complain that it has put all the eggs in the same basket (or rather, a hitch) too soon and thus find itself in a very weak negotiating position. In order to be quick, we risk accepting everything, including the ESM loan. The recrimination is even greater if we look at the data published on Thursday by the Mef : in September the requirement of the state sector amounted to 22 billion (compared to 23 in September 2019) and from January the requirement stood at 128 billion (73 billion more compared to 2019) and, despite this, interest expenditure drops, in nine months, by 4.5 billion (-10%). The Treasury has issued more debt but at decreasing rates (also taking advantage of shorter maturities at negative rates) causing the final account to drop which will drop even more when Bankitalia transfers interest collected on government bonds to the Mef in the form of dividends.

So the perplexities about the conduct of this government only increase. Why have we not fully exploited this favorable situation, which the ECB will continue to support for a long time, to define our autonomous recovery plan, without conditions and exhausting negotiations? The second largest manufacturing power in Europe needs to get into debt with the EU, rather than with the market, perhaps "saving" a plate of lentils (but we know that this is not the case, because it is the result of the comparison of apples with pears), but losing freedom to decide what and how much to spend on recovery?

Or there is the explicit choice of perpetuating the external constraint until 2058, strengthening the autopilot that has governed our economy for several years now, perhaps starting with the loan from the Mes, defined some time ago by an unsuspected Giampaolo Galli a gun aimed to the temple ?

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vi-racconto-la-confusione-del-tesoro-su-manovra-recovery-e-debito/ on Sun, 04 Oct 2020 08:30:35 +0000.