Italy, the ECB, the Mes, the Troika and the trap
Who pushes Italy towards the Mes. Giuseppe Liturri's analysis
Anyone who does not want to fall from the pear tree in a few weeks – at the latest a few months – in the face of the precipitate of events that could see our country substantially commissioned by the Troika (Commission, ECB and, just to abound IMF), should not lose having seen two articles published in the Sole 24 Ore at a short distance.
Ignazio Angeloni and Daniel Gros – two economists more encysted than ever in the establishment – evidently did not feel satisfied. They wanted the message to come clear and strong and then, after Thursday 30 June, they gave an encore also on Friday 8 July. When we commented on the first, we naively believed that it was enough, that they had honorably fulfilled their mission, like disciplined toy soldiers. We were wrong.
They returned to the point, to magnify the magnificent and progressive fate of Italy's choice to ask for a precautionary loan from the Mes. Word and highly toxic institution for Italy and, at least part (we hope), of our parliamentarians.
It may happen that a proposal is formulated and then it all ends there, but two clues prove it. They are proof of the fact that the project is in a very advanced state and well seen in the rooms where the actions are "weighed and not counted", and then it is better to go " behind the enemy lines" and deepen the merits of the story.
The two authors fear that the ECB's tool to contain spreads that has been talked about for weeks is too risky. Little time to design it and too high expectations on the markets that risk being disappointed.
Then it is better to turn to safe used vehicles, that is to say the precautionary loan from the Mes, " a more natural and less risky solution".
And here, in order to sell the goods, a sequence of apodictic statements or in clear contradiction with the literal tenor and interpretation of the ESM Treaty starts.
- Ours portray the access to the precautionary line as a walk in the park, in order to preventively put ourselves " safe from speculative attacks" . We would be entitled to it because " we enjoy a healthy economic situation ", just have it " certified " by the Mes. But they can't help but know that:
- It is not the Mes that certifies the sustainability of the Italian public debt but, after the country's request, the Commission " in concert with the ECB and, if possible, together with the IMF ".
- In principle, the “ ESM will provide stability support to ESM members whose regular access to market finance is or is likely to be compromised ” (recital 13 of the Treaty). Not exactly a precaution to take while still healthy.
- So if a country is healthy, it does not resort to the ESM, not even as a "precaution". If he is attacked it is because he manifests vulnerabilities. Indeed, if he resorts to the Mes, which in any case has limited support capacity, the risk of self-fulfilling prophecy is very high. It is equivalent to going to the hospital if you are a healthy person: someone would have doubts about our health. That "precautionary" is to be interpreted in conjunction with the other line "under reinforced conditions". The difference lies in the conditions present in the memorandum of understanding: “ they can range from a program of macroeconomic corrections to constant compliance with predefined eligibility conditions” (art. 12 ).
- The argument that admission would take place without overly severe scrutiny because the Stability Pact is suspended is misleading and deceptive. First of all, the ESM does not care: from the creditor's point of view, conditions do matter. And then what would happen with the restoration of the Stability Pact? Would they send us straight to the bad debtor group, without appeal?
- Again according to Angeloni and Gros, once the ESM financing has been obtained, the ECB's OMT purchase program is accessed. And even here they pretend to forget that:
- That program is inextricably linked to a rigorous macroeconomic adjustment program stipulated with the ESM. Without program, no OMT.
- Precisely due to the legal disputes with the Court of Justice and the German Constitutional Court, the concrete use of the OMT program poses such and many conditions that make it in fact unusable. Unless we hypothesize the de facto dispossession of Italy.
- The authors hide behind the weak screen constituted by the probable sufficiency of the announcement effect. What if the markets wanted to go and see the bluff, knowing full well the application fragility of the OMT? “ Falqui, the word is enough !”, Only the title of a famous spot from the past remains.
- Angeloni and Gros, when they try to overcome the objections to their proposal, remember the famous phrase " ask yourself a question, give yourself an answer " by Gigi Marzullo. They choose their objections and overcome them (not always) easily.
- They overlook the fact that, admitted and not granted that the " qualification is automatic " because the conditions are already satisfied according to their interpretation, this happens " at this moment" . Once you have put your head under the trap, it is possible at any time to change the conditions, Treated in hand.
- They minimize the reputational damage deriving from this choice, because the adhesion would take place by our autonomous decision, without being forced to do so by an emergency. Instead, this is precisely what appears to be a shame that investors would translate in an instant into an irrevocable sentence on the comatose state of our country. And then how do you argue that we are not forced? If it is presented just as the only instrument on the square, take it or leave it?
In conclusion, the only thing we share with Angeloni and Gros is the perplexity about the new instrument of the ECB: “ to be invented quickly and amidst a thousand doubts and opposition ”. For the rest, we thank but we do not buy anything.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/italia-mes-bce-troika/ on Sun, 10 Jul 2022 07:35:52 +0000.