Dear Giorgia, I am writing to you,
I saw your interview on TG2 post, where you give explanations on why, in your opinion, the MES is a rip-off. I will not enter into your political controversy with the Five Star Movement, since Luigi Di Maio’s party will take responsibility for his actions on the imminent parliamentary occasions, both by voting for and against the Italians. government use of the Salva States fund. Allow me, however, from your friend and professor once consulted, to provide you with some economic, financial explanation to demonstrate that on the MES, you are simply wrong. In the formulation of enhanced special credit line (ECCL) it cannot in any way be considered a rip-off.
But let’s go in order. You say that you disagree with the ESM because they are resources lent and not given outright. Tell the truth. But a truth that everyone has known for months, also because the “governance” of the ESM has never written the opposite. The resources of the ESM are loans and it could not be otherwise, I add. And rightly so. Because you see, dear Giorgia, whoever lends money always claims to have guarantees on how this money is spent to obtain benefits, added value, returns and not to be squandered. Do you know of any credit institution that lends money without wanting to know, directly or indirectly, on the basis of creditworthiness, the reason why they are asked for? Or that does not put any conditions on the loan? Not me. Allow me to tell you that the case of Italy is exemplary (in the negative) in representing a state that has never been virtuous on the expenditure of European funds. How many examples do we have of European resources given to our country and that our country has never been able to spend, has wasted, spent on useless works or that it simply has not been able to use? There are irrefutable data that demonstrate what I am saying. Or do we really want to believe that Europe is bad, that it wants our evil, that it wants, as you say, to “cheat us” and that we are the innocent victims? You are too intelligent to believe such a fairy tale. Please, let’s be honest.
You then argue that even if we do not take the money with the MES loan, we can take the same by borrowing on the market, through the issuance of BTP. You are therefore saying that going on the market and issuing 10-year BTPs at a rate of return of about 1.31-1.5% is cheaper than obtaining a loan on which you pay no interest, not realizing that the savings in the to use the ESM, to date, amounts to around 500 million euros per year and around 5 billion in the decade. The MES loan is also immediate, because the funds are available immediately. To issue bonds, however, you must have sufficient demand. In recent months you have often offered to sell BTP only to Italian families, a sort of “gold at home”. Well, the issue of the BTP Futura, a tool created specifically to do what you say, ended in a sensational flop: only a little more than € 6 billion raised in a week, despite attractive and much higher returns than those offered by other similar titles. Do you know what the Treasury will be forced to do now to remedy this flop? He will have to come back with his hat in hand from the big foreign investors, who at this point will have even more bargaining power and will be able to dictate their conditions. When it came to getting your hands on the wallet, the Italians didn’t turn out to be those great sovereigns you expected, dear Giorgia. In short, they did not trust. Furthermore, your party argues that it is right to get into debt by issuing BTPs, because then the ECB will buy them on the secondary market. It is the strain of monetary sovereignty. Until mid-2021, however. Because from the middle of next year, dear Giorgia, the ECB has already declared “apertis verbis” that the PEPP government bond purchase program will cease. At that point not only will there be no more purchases, but the ECB will start selling them, our beloved BTPs. Do you know what this means? A nice massive sell-off of our government bonds, a fall in their prices and an increase in their yields. At that point, the more bonds you have issued, the worse it will be for you, for us. And in these conditions would you really go and advise to issue even more securities? Madness.
Yet. You openly claim that the MES should not be taken because it is a “senior” loan, which you must repay before the other creditors and this contributes to increasing the returns of the “junior” part (which would be the ordinary BTP). € 37 billion out of 2,500 billion of the total public debt or more or less 500 billion annual roll-over. A burden that will then drop immediately as the loan is repaid. And do you think this is enough to fragment the Italian public debt market? Are we kidding? Following your reasoning, then, no company should go to the bank to ask for a loan anymore, but should only issue corporate bonds, otherwise they would become junior. And let’s stop here.
Finally, on the question of Mes as a trap inserted in the treaties I answer you with the analysis of prof. Stefano Ceccanti, who will also be a deputy of the PD, but who is also a very serious constitutionalist and ordinary professor of public law, who in recent days has answered the following questions: how is it possible that the MES has changed, allowing to expose the conditionalities, apart from the purpose of restructuring health systems, without the Treaties having changed? Is it just a political decision? If yes, how can political thinking prevail over written norms? This question, or rather this series of questions, fatally drags another: who assures us, especially if it is a mere political will, that the Troika model conditionalities are not suddenly reinstated?
The thesis of the absence of conditionality, except for health, has a legal and not only a political basis. The ‘mother norm’ of European law from which to start is art. 136.3 of the Treaty on the Functioning of the European Union: “Member States whose currency is the euro can establish a stability mechanism to be activated where indispensable to safeguard the stability of the euro area as a whole. The granting of any necessary financial assistance under the Mechanism will be subject to strict conditionality. “
The tone of the norm, especially the adjective ‘rigorous’, is often invoked both by supporters of more rigid positions and by those who are intimidated by it. However, it is still a generic norm, which can be developed differently, as an “accordion” (as they say in the jargon of the constitutionalists), according to the further norms with which it is fatally concretized. This is the case of the Mes International Treaty, where we find in article 3 the ‘daughter-rule’ relevant to us: “The objective of the ESM is to mobilize financial resources and provide support for stability, according to rigorous conditions commensurate with the financial assistance instrument chosen, for the benefit of the members of the ESM who are already in or at risk of facing serious financial problems, if indispensable for safeguarding the financial stability of the euro area as a whole and that of its Member States “.
The daughter norm takes up the adjective rigorous, but develops it in the sense of proportionality according to the various possible tools, proportionality which first reaffirms with the same words in article 12 and which then concretizes in three types: precautionary financial assistance on the basis conditional credit lines or strengthened lines of belief (art. 14) and loans to countries in crisis linked to a macroeconomic adjustment program. (art.16).
The enhanced credit lines are established by means of a pact under the procedural conditions of article 13 paragraph 3: in practice the only constraint is to reach an agreement between the requesting country and the European Commission on the entrustment of the Council of Governors of Mes, as the constraints appear deliberately written in a fluid way (compliance with the “economic policy coordination measures envisaged by the TFEU” and content of the protocol conforming to “the severity of the weaknesses to be addressed” and to the “chosen financial instrument”).
Being a bilateral agreement, it does not appear susceptible of unilateral revision. So it is not that politics has derogated from the Treaties, it is the Treaties that already allow this political flexibility.
You will say that in Ceccanti you may not even believe but I think you are completely right. And not only because of academic solidarity but because it has brought together accurate academic analysis with the necessary political sensitivity. I don’t know if I convinced you, dear Giorgia, and certainly my answer was too long. But I assure you that these evaluations of mine come not only from my economic knowledge but also from the political heart. I, see Giorgia, have faith in the European Union, and I think this tiring Union is our future. The future is built together, with reason and with the heart.
With affection and respect for all time.