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ECB, Lagarde’s decision and Frankfurt conditions to defend the Italian debt

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ECB, Lagarde’s decision and Frankfurt conditions to defend the Italian debt
Written by aquitodovale

Only the provincialism of a part of the Italian political class – incredible after almost a quarter of a century of life in the euro – could create such a mirage: the illusion that what happens in Rome remains in Rome. That it is not linked by a relationship of reciprocal influence with what is happening in Brussels or Frankfurt. Of course the opposite is true. There is a reflective relationship between what happens in Italy and in the nerve centers of the European Union: each dimension modifies the other in a series of references between the two that can produce a virtuous balance, at best, or difficulty and frustration on both sides. leave when ignorance and misunderstanding dominate.

The decision to overthrow Mario Draghi’s government falls within the law of parliament, but was taken as if this mutual exchange relationship did not exist. This is why we hear so little about some factors that are so cumbersome that they inevitably impose themselves on the electoral campaign and on the government to come. The first concerns the European Central Bank, which yesterday raised rates for the first time since 2011. Inflation is therefore worrying the ECB will continue to raise rates, although it is not clear for how long. Just as the cost of money was increasing twice as much as announced in June, President Christine Lagarde spoke of clouds over the economy. The mood of consumers in the euro area is the blackest since it is measured and the ongoing international slowdown means that the 30 fundamental materials and raw materials of globalization – from oil to lithium, from steel, to cotton, to wheat – in the last month have fallen in price. Everyone, no one excluded.

For now we have entered into a contributing monetary tightening to raise the yields on Italian debt – therefore the cost of supporting it – in the midst of a government crisis. Lagarde yesterday presented an instrument of protection – a purchase plan – if government bonds come under a disorderly and unjustified attack. The mechanism designed for Italy. And subject to conditions so that it can be triggered or perhaps, with the very fact of existing as a hypothesis, inhibit the unleashing of a financial storm. For the mechanism to be credible, the conditions set by the ECB must be respected by the potentially beneficiary country. And they go to the heart of the agenda of any government that forms in the fall.

First of all, a country that wants to be entitled to the ECB shield it must not be subjected to a Brussels procedure for excessive deficit. Or at least he has to work hard to get out of it. It does not seem relevant today given that the Stability Pact remains suspended, but it is: for months the EU Commission has been asking Italy (also with Mario Draghi premier) to reduce public spending in proportion to the size of the economy and on this point can still open a procedure. If therefore the revision of pensions in the autumn were made with the costs of Quota 100 in 2018, then the relationship between Rome, Brussels and Frankfurt would enter into tension and with it perhaps also the financial stability of Italy. Not quite what one feels the need for, in the midst of an endless pandemic and the aftermath of a war.

The other conditions of the ECB then deliver a message that the entire political class did not understand. It is true for the next government as it would have been for Draghi: the budget constraint is returning. over the bonus season, tens of billions of euros and other similar miracles. The payment of interest on the debt will take up more and more space on the balance sheet, so there will be less for the rest. Furthermore, the ECB intends to evaluate and judge the resilience and financial trajectory of any country that can benefit from its interventions, therefore reducing deficits and debt becomes important again. Here comes a second factor in the interaction between Italy and the rest of Europe, because in recent months the new budget rules are being drawn up. A compromise is looming that makes the roadmap for reducing debt less suffocating, in exchange for measures for those who violate it would be less circumventable. If the next Italian government now gives the impression that it is rejecting the bonds (or perhaps the euro itself), other countries would ask for more suffocating rules in reaction.

A third factor in the game between Italy and Europe also jumped out yesterday in the words of Christine Lagarde: whoever wants to be protected by the ECB shield must also prove to be punctual in the reforms indicated in the Recovery Plan. And this too has a concrete meaning, once declined in Rome. Parliament, for example, must approve the enabling law on Competition by the summer, otherwise there will be no time to prepare and vote on the implementing decrees by the end of the year. At that point the country would lose a 19 billion recovery installment, scheduled for December. It goes without saying that the competition law and the many interests it touches are among the broken tabs for which Draghi has just been jubilated. Unless this too was pure political theater and at the end of the day everyone, absolutely everyone, understands the obvious: what happens in Rome does not stop in Rome.

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