December 5, 2022

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Why the ECB’s anti-proliferation shield could be a nightmare for Italy :: Blog su Today



It had to be the “Save Italy” shield, the anti-spread umbrella to offset the interest rate hike wanted by Germany’s tough hawks, which risks adverse effects for eurozone countries with higher public debt. But as designed, the transmission protection tool (Tpi) launched by the European Central Bank, rather than helping countries like ours or Greece, risks provoking a tug of war between southern countries and tough hawks like those seen in the pandemic months leading up to the recovery fund.


In general, the ICTY reminds of the securities buying program launched by then-ECB President Mario Draghi (the so-called “Bazooka”) in the wake of “whatever it takes”: basically, if a eurozone country is facing serious difficulties In the finance itself in the markets because it is unable to sell its government bonds at reasonable rates (the difficulties are ‘photographed’ by the spreads), the ECB will intervene by actually buying these bonds. Draghi’s program had capped purchases, and his successor Christine Lagarde’s ITI had no limits. But this is good news, at least for Italy, only in part.


The problem, in fact, is that this new program will not run automatically, but only for those “jurisdictions that have a deterioration in financing terms not justified by the specific fundamentals of the country”. That is, for countries that have problems selling their national bonds and that respect certain criteria for the stability of accounts (“fundamentals”).


And here comes the long hand of the gods of strict guardianship. Yes, because the criteria chosen by the European Central Bank to determine whether a country has the basics of access to help combating the proliferation of the ICC are four and they seem to help austerity hawks who in recent years, until 2024, has the stability pact decided by Brussels been halted with The outbreak is bad.

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The specific criteria are 4. The first two factors relate to the Stability Pact: The country receiving the shield must not be subject to a measure of excessive deficits or excessive macroeconomic imbalances. Now, before the pandemic, Italy was at risk of action due to its high public debt. The pandemic has further worsened our debt, but on the other hand, with the suspension of the charter, there will be no danger in this regard, at least until 2024.


The requirement is necessary because in its explanatory document, the ECB adds an apostille to the first two criteria: “The country should not be assessed, even in the absence of action, as having not taken effective action in response to the recommendation” Brussels. What do the latest recommendations for Italy say? They say, among other things, to contain spending already underway in 2023, keep it below 0.4% growth over the previous year, and begin to reduce debt and deficits in a gradual and credible manner.


This is a very dear recommendation for hawks across the EU. German Finance Minister Christian Lindner said at the time: “The fact that member states are now able to derogate from the Stability and Growth Pact does not mean that they should already do so.” Now, where the charter can, the ICC can.


To be clearer, the third criterion for the ICTY leaves more discretion to the ECB: “in checking the sustainability of the public debt trajectory”, or, in the Italian case, in assessing whether Rome is following recommendations on spending containment, “The Governing Council will take into account, where available, debt sustainability analyzes of the European Commission, the European Stability Mechanism, the International Monetary Fund and other institutions, along with the internal analysis of the European Central Bank.”
If the above three criteria are not sufficient, the fourth and final bulwark that must be overcome in order to obtain assistance from the ICC is “compliance with the commitments made” in the National Recovery and Resilience Plans, the NRPs. What are these obligations? There are various reforms to the land registry, public administration, justice, labor market and competition. Not simple reforms, it will certainly not make its current political crisis any less complicated to implement, quite the contrary.

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As the standards are formulated, it is clear that the ECB has left a large margin of “political” discretion in deciding whether or not to implement ICTs for this or that country. It can be good for Italy, but it is also bad. To make matters worse, we add that the decision rests not only with President Lagarde, but with the Frankfurt Board of Directors. That is, for the central banks of all euro countries, including the German bank, which previously trembled against the return of the “drag” memory bazooka.


As Welt, a German newspaper close to hawkish stances, writes, the ICC can help the “notorious culprits of debt,” namely Italy and Greece, making the ECB “the bad European bank, sucking up all junk bonds.” No It can be imposed on any other investor.” That is, just to understand the contours of the European debate that may await us in the coming months, which is very similar to the controversies related to the pre-recovery fund.




At the time, the drama of the pandemic and the union of intentions among the countries hardest hit by the virus (Italy, Spain and France) won the resistance to being tough and frugal. Now the situation is different. As mentioned before, the Italian political crisis is not helping. This is the view of some analysts, such as Fabrizio Santin, chief investment officer at Pictet, which, in accordance with the strict standards set by the European Central Bank for information and communication technology, can turn a tool created to contain the spread into a kind of incentive to speculate on the stock markets and thus to increase the same The difference: “The risk – says Ansa – is that in light of recent political events in Italy, financial markets will go to test the ECB’s determination to contain the widening from the margins.” To check if Lagarde is really ready to repeat Draghi’s example of ‘whatever it takes’. Or if it did not have the strength, also due to the lack of “Draghi” in Italy who could stand up to the hawks in Europe.

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