Why is Europe threatening Italy over the ESM: goodbye to the ECB umbrella for those who snub EU loans?
What the Reuters indiscretion hides: the ECB lets Eurozone countries know that it would be "advisable" to avoid snubbing the loans offered so generously by the EU. The comment of the analyst Giuseppe Liturri
When European institutions want to send "friendly" advice, they do not use official channels but generally have three informal channels available: talk to some journalist who is a friend of the Reuters agency, Bloomberg or the Financial Times and make things understood by those who need to understand them .
This time it was the turn of the Reuters journalists to speak out for a message that was not even vaguely threatening, but rather explicit: the ECB let the Eurozone countries know – that they are issuing public bonds freely, in the relative safety that, once on the market , these bonds will be bought out by the ECB – it would be "advisable" to avoid snubbing the loans offered so generously by the EU. To be definitively convincing, the ECB could change the allocation criteria for its purchases, hitherto generously biased towards Italian and Spanish bonds (but not only), thus discouraging the convenience of issuing government bonds and forcing member states to turn to instead to the loans that the Commission will disburse next year under the Recovery Fund or, more properly, Next Generation EU.
Reuters cites as many as four sources within the ECB, according to which a discussion is underway on the strengthening of the APP program (conducted according to a rigid distribution key between the states) or the more recent PEPP program (characterized by ample flexibility).
With the second program, Italy was able to benefit from purchases up to 30/9 for 95 billion out of a total of 512 billion (18.6%, which becomes 20% excluding securities issued by supranational institutions) which, together with purchases of the APP program (specifically PSPP) have fully absorbed the net issues of the Treasury in the period March-September. Too comfortable like this, they must have thought between Brussels and Frankfurt.
The purchases by the ECB have in fact led to a generalized lowering of the yields of government bonds along all maturities, to the point of making it much more attractive to borrow on the markets by issuing bonds that are not subject to any conditions, rather than receiving conditional loans from the EU. use for specific purposes (environmental, digital transition, etc.), as well as compliance with the stringent macroeconomic conditions contained in the " Country Recommendations ".
The fact that a few weeks ago both Spain and Portugal showed little interest , at least at the moment, in EU loans, must not have been welcomed in the Eurotower in Frankfurt which, wisely, has decided to leak what it is believed to be. enough to induce milder advice from these countries and, above all, Italy. In short, a way like any other to talk to a daughter-in-law, because mother-in-law intends.
In recalling that among the EU loans ready for use there is also that of the European Stability Mechanism , it is relatively easy to close the circle and understand what the “sources of the ECB” really refer to.
There is a country that must pay a pledge, in terms of convinced adherence to European constraints and the loans (Mes in the lead) have precisely this purpose. In Europe they do not tolerate this alleged "free meal" offered by the ECB to Italy and are pacing to put it under the surveillance of stringent conditions brought by the loans so generously "offered".
They are trying to make us understand, Today with good luck. Or with the bad, when it will be enough not to press any key on the PC used to purchase securities by creating central bank money, to start a round of spread.
Timaeus Danaos et dona ferentes.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/perche-leuropa-minaccia-litalia-sul-mes-addio-ombrello-bce-per-chi-snobba-i-prestiti-ue/ on Wed, 04 Nov 2020 05:41:14 +0000.