The new frontier of the sovereign intelligentsia’s thinking is that of believing that the only institution that can solve the unprecedented financial crisis in which Italy (but not only, because a similar reasoning is also done in other countries of the world, such as The United States and the United Kingdom) both the European Central Bank or the other central banks have fallen, and the only comprehensive, all-encompassing instrument capable of doing so is the ultra-expansive monetary policy that they, the central banks, can implement.
Such a “sovereignist theory” is as simple as it is dangerous. In the European case, the policy of unlimited purchase of government bonds by Frankfurt, better known by the term of Quantitative Easing, would be sufficient, again according to the sovereigns, to guarantee all those financial resources that European economies need to finance their reconstruction and recovery plan. The reason is very simple. If States need money, the Treasury issues an unlimited amount of government bonds, investors (as long as they have resources) will buy the securities on the primary market (at auctions), and then resell them to the ECB on the secondary market (transactions between investors) . If the central bank is willing to do such an operation (in practice an indirect debt monetization), why ask the European Union for financial aid (loans), through more or less conditioning instruments such as the Mes, the Bei, the Sure or the Recovery Plan? Better to issue bonds as long as you can, and decide independently how to spend the proceeds, without any conditioning from Europe. This is the idea. This is the theory.
The idea, therefore, of the Central Bank (of central banks) seen as a panacea for all ills, a variant of helicopter money in unlimited quantities, of free loans: such an idea is certainly fascinating and tempting. And in its simplicity, convincing. At least as was the idea that all subjects were equal, that society should have neither social classes nor masters, as in the culture and practice of the Soviet Union for a large part of the last century. Culture and practice that hundreds of millions of individuals believed in (and still partly believe in parts of the world). We also know how it ended. Dictatorships, single men in command, poverty, discrimination, cancellation of civil and human rights, cancellation of the market. The decision-making centralization in the hands of ideological-technocratic subjects has created the worst totalitarianisms and with them the loss of freedom.
What the sovereignists propose today is in fact a similar drift that has the terminological paradox in addition. Sovereignty as a synonym for loss of sovereignty. The creation of a financial technocracy, directed by a few enlightened central bankers, to which the progressive surrender of sovereignty by the states that are part of the eurozone, represents nothing more than this destructive paradox. Perhaps the proponents of this dangerous theory do not realize that, by delegating, in the case of Europe, the decision-making power to monetary policy to the ECB, and invoking monetary policy as the only solution to economic problems, a situation is actually created where a a very small oligarchy of bankers, more or less legitimized by political power, has in fact the power to decide everything for everyone. This leads to the paradoxical situation, as we have already said, where the sovereigns, opposed to the decision-making interference of the European institutions, end up delegating the decisions on the fate of Europe and its components to a single supranational institution.
The financial reasoning that theorists of this position make is that the quantitative easing program is made by the Governing Council by the ECB, but the actual purchases are then made pro quota – depending on the participation in the capital of the ECB – by the national central banks (Bank of Italy for our country), with the proceeds of the securities which are then, at the end of the process, returned by the Bank of Italy to the Treasury. A convenient round game, not only in Italy, therefore, because the money eventually returns to those who issued them, rather than remaining in the wallet of those who bought them.
This absurd idea of creating a decision monopoly with the related financial instruments available to solve all the problems has evidently very heavy side effects. The first is to make the economic policies of the States and the policy itself useless in one fell swoop, which by definition is based precisely on the freedom to decide between multiple options available, on the basis of the consent that is intended to be received. Then, in our case, it makes the European Union useless, since, if each State had unlimited resources available to finance debt projects, what sense would it have, at that point, to have a common budget, common policies , a single common debt and common financial instruments? Nobody. The printing of money without obstacles by the ECB would create a gigantic moral hazard for governments leading them to borrow without limits, in spite of the policies of maintaining the balance sheets in order, on which the Union itself is based. Not to mention the collapse in the value of the euro that such a policy would create. The Europeans would have only waste paper in the hand with the euro.
And here is another paradox. The model that sovereignists have in mind is that of a European central bank subject to individual governments, which buys what is needed to cover the deficit and debt decided at national level. We would be laughing if there was no crying. A 1981 pre-divorce model squared. However, this model required high inflation and worked with closed economies, especially in the absence of perfectly integrated financial markets such as the current ones. To translate this model at a European level, there would be an agreement from everyone: this is not the Europe that other countries have in mind, this is not what is written in the EU treaties. That in a deep crisis the central bank covers the deficit is one thing, that it must always do it is quite another.
The monetary policy of Quantitative Easing is necessary given the exceptional nature of the moment. But, precisely for this reason, as Mario Draghi has repeatedly stated, it must be temporary and, in any case, it cannot be considered effective in the absence of virtuous budget policies decided by national governments. Empirical tests have shown that ultra-expansive monetary policies have served in times of crisis, but it is good to get in mind that these are destined to leave the ground for more traditional monetary policies. At that point, governments that have not used the opportunity of favorable monetary conditions to rearrange their balance sheets and their economies will pay a salty account, as will their banking system, which will be full of devalued government bonds and their real economies will be reduced to collapse.
The crucial point is the difference between monetary policies carried out in only national contexts (eg USA, United Kingdom, Japan) where the central bank can buy securities and the Treasury can finance the deficit until the economy starts up again, and the context of the eurozone, where economies have different trends and deficits may also have different levels. Monetary policy must take into account the “average” situation in the euro area. When the euro area grows normally, monetary policy (and purchases of securities) will change, even radically. Italy will then no longer be able to count on Frankfurt’s purchases of securities.
Only a federal budget can be structurally redistributive, that is, capable of helping those who have lower income levels or are affected by asymmetric shocks. The Next Generation UE Fund was created to help above all countries such as Italy, through the issue of community bonds for all European taxpayers. Of course, the help offered is conditional, but with common sense conditions: ‘I pay you the investments that can make you grow.’ Provided, we remind you, that the country in question has presented a reform plan that it wants to finance. And this is not yet the case in Italy.
Furthermore, a federal budget (including that of the EU) directly reflects the political choices of the Council of European governments and the Parliament of Strasbourg. In the case of the ECB, there is political legitimacy (for the appointment mechanisms, for adherence to the treaties, for reporting to the EU Parliament, etc.) but there is no direct political involvement in the choices.
The theory of the sufficiency of monetary policy in the resolution of financial crises has been proposed both by the right-wing sovereigns (Alberto Bagnai of the League is the main advocate), and by the left-wing sovereigns, (from the 5-star movement to the communist component of the majority of government) . This, which may seem like a great paradox, is actually the fulfillment of what the Nobel Prize-winning philosopher and economist August Von Hayek claimed when he said that there is actually no difference between left and right, in a generated “continuum” from a negative exacerbation of real socialism. Only the names change, the substance is the same. As in the case of sovereignty. There is no difference between the sovereignty proposed by the League or by the 5 star Movement. All argue the same theses, dangerous for Italian society, because they lead to believe that a super policy-maker, like the central bank, can allow everything by suffering the arbitrariness of governments. Ultimately it is the end of the free market, but also the end of democracy as we have known it, market and democracy which are the two pillars on which modern Europe is founded