Surprise: the Treasury speculates to do without the Recovery Fund
While waiting for the Recovery Fund, the resources for the national advance of the financing of the projects eligible for the purposes of the NGEU programs can be found by resorting to the liquidity of the Treasury or through new issues of government bonds. The in-depth study by Giuseppe Liturri
Yesterday the Parliamentary Budget Office – an independent body in charge of validating the hypotheses and macroeconomic forecasts of the budget law (and not only) – arrived to reiterate what had already been noted by commenting on the Nadef and the draft budget document: in the absence of legal certainty on the Recovery Fund (NGEU), the budget law for 2021 could not have contained expenses based on nothing. And so it was. Since the outcome of the European negotiations is still on the high seas due to the vetoes of Hungary, Poland and Slovenia, the Mef have been forced to make a virtue of necessity and have put their hand to their wallet. The investments, or at least part of them immediately, will be done as if the NGEU did not exist and only reimbursements will arrive from Brussels, but only if we are good and respect all the conditions.
The key to everything lies in the "Rotation Fund for the implementation of the Next Generation Eu – Italy" provided for by article 184 of the budget bill, which by way of "anticipation of contributions from the European Union" allocates 34 , 8 billion for 2021, 41.3 billion in 2022 and 44.5 billion in 2023.
Quoting the PBO verbatim : “The establishment of a revolving fund aimed at the implementation of the NGEU program will make it possible to provide the administrations with national advances with respect to the resources coming from the EU, in order to ensure the timely activation of the interventions to be carried out. Pending European funds, the resources for the national advance of the financing of projects eligible for the purposes of the NGEU programs can be found by resorting to the liquidity of the Treasury or through new issues of government bonds, which should subsequently be offset by European funding. to be paid within the year. These uses, as mentioned, amount to a total of 121.2 billion and concern the RFF for approximately 104.5 billion, the ReactEU program for 14.7 billion and additional European programs for approximately 2 billion (such as Just Transition Fund and Rural Development). In the summary table of the financial effects of the budget bill, almost all of these resources, equal to 120.7 billion – distributed in 34.8 billion in 2021, 41.3 billion in 2022 and 44.6 billion in 2023 – are reported Article 184, with reference to capital interventions ".
We will be able to do it alone, drawing on the liquidity already in hand and issuing public securities on the market, but only formally, since the European Central Bank will buy almost everything, because it has transformed (de facto, if not de jure) into a net buyer of last resort. The troubled launch of the European regulations, when it takes place, will allow the approval of the projects by the Commission and the allocation of the sums of the fund to the various administrations in charge of its implementation, which will then be followed by the reports and reimbursements from Brussels. But the bottom is already there immediately.
Proof of this is that about 9 of those 35 billion allocated for 2021 are already destined to finance the tax credit for industry 4.0 for 5.3 billion and the tax credit for the South for 3.5 billion. Without even waiting for the approval of the project. Evidently the Government feels relatively certain of the approval (ex post in 2021) of these spending destinations and, to get them started immediately, it had to widen the purse strings.
So what is the NGEU for? To ensure that the creditor who will lend us the money necessary to finance the investments is not the market (that is, in fact, the ECB) but the Commission (which will get into debt by issuing securities also purchased by the ECB).
With a consequent dual system of conditions:
a) Financial. As the Commission is a privileged creditor and this status always has a price on the financial markets.
b) Policies. On three levels:
1) The strong influence of the Commission on the type of investments financed with EU funds (digital transition, environmental, etc…). This political conditioning was reiterated four days ago by Commissioner Paolo Gentiloni: "The Commission does not dispense transfers, it is not a financial intermediary".
2) Control over the budgetary policy of the member states will be even more stringent, as considered by many to be legitimate as a result of the commitments undertaken by the EU towards the financial markets.
3) Finally, the "emergency brake" mechanism envisaged by the European Council of 21 July and the entire regulation of the NGEU are a political "level crossing" that can suspend the disbursement of funds, through very complicated and hyper-bureaucratic mechanisms, or through "traps" such as the specious conditioning of loans to the rules of the "rule of law", which is much discussed. Which, of course, does not happen through normal recourse to the market.
We did not imagine that it was the Treasury itself that clearly showed – immediately and without conditions, the resources necessary for the development of the country – all the defects of the Next Generation EU.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/il-tesoro-ipotizza-di-fare-a-meno-del-recovery-fund/ on Wed, 25 Nov 2020 06:11:38 +0000.