Italy stretches the euro rope | Economy

Italy stretches the euro rope | Economy

Money determines the real dimension of dreams and the 5 Star Movement (M5S), the party that governs in Italy with the League, feared last week that theirs would end suddenly. The citizen income promised in the campaign, a sort of universal basic salary of 780 euros, did not find accommodation in the budget. The Economy Minister, Giovanni Tria, a cautious man of the confidence of the head of the Republic, was planted in a figure of deficit that prevented it. So the spokesman for the Prime Minister of Italy, Rocco Casalino, a former Big Brother student tanning at Casaleggio Asociados, the communication company that drives the M5S, told a journalist in a leaked conversation. "He sweats it to us, we will pass them to knife. Tria paints little, the problem is that in the ministry there are a series of people who have been protecting the mechanism for years, the whole system. It is not acceptable that the 10,000 million cojones are not found. If they do not, we will devote everything 2019 to throwing those pieces of shit. " Thus began the negotiation of budgets converted, days later, into a political challenge to the European Union.

The threats should not have the expected effect. Because then they went for Tria, who was still determined not to violate the community rules and keep a deficit of 1.6% of GDP. In a sort of SOS, he said in public that he would be faithful to the Constitution and would not let himself be intimidated. But they tightened more, and in the Council of Ministers of Thursday, the holder of Economy feared to resign when there was no other solution than to fix it in 2.4%. He called the President of the Republic, Sergio Mattarella, who was at a concert of Ennio Morricone in the Roman auditorium of Santa Cecilia and could not answer. So, completely alone, he swallowed and agreed to defend a project he did not believe in. The 10,000 million appeared, they did. Because it also had to cover the revision of the pension law (another 7,000 million), which reduces the age of retirement and affects about 400,000 people, and the start of a flat rate of personal income tax (2,000 million) that will not fully reach 2021 The deficit will skyrocket, but even so, analysts warn, Salvini and Di Maio will pay for this round.

Hard hours

Tria, a Sapienza professor with technical profile, the only man who still represents the supposed establishment in the government, spent his most difficult hours. "Today must be regretting having accepted," says a person from the environment of the minister. But he accepted. And, for the moment, he has signed the draft of the so-called "budgets of the people", which, for the first time, convert into law what until now was only noise.

The Economy Minister is a technician chained to a government with which he does not agree

At the end of the concert, Mattarella had to find the missed calls and finally spoke with him. Tria decided to stay by institutional sense. It works for a solution that does not take the country to dangerous adventures, say sources in the environment of the head of state. "There are pressures from Banca Italia, from the ECB, from the banks that risk so much … There is a reserved offensive of calls with concerned people, not only the Quirinal [residencia del presidente de la República]. No one wants to be the guardian of rigor or defend Brussels. But if a bank jumps, current accounts skip ", insists. From Brussels came the first criticisms. But Salvini said they brought him to the pairo [“me ne frego”] and he called the president of the European Commission, Jean-Claude Juncker, drunk: "I only speak with sober people". The markets, a little later, gave their opinion.

"The temptation to say they are leaving the euro is there. It would be disastrous, "says Codogno

The stock market fell the day after the budget announcement and the risk premium reached maximums since 2014 (302 points), although now it has relaxed somewhat and the differential with the German bond was on Friday at 287 points. Frightened by a reaction that his advisers had denied, the government kept the deficit figure at 2.4% by 2019. However, a week later it reduced it to 2.1% by 2020, and by 2021, to 1.8%. %. But the objectives continue to be well above the 0.8% to which the previous Government committed itself and will not convince Brussels, as recalled by the economist expert in public debt and almost prime minister of Italy in the last electoral crisis, Carlo Cottarelli. "The European rules have been violated. It is the first time that it is not disguised. Now, at least, they are honest and they clearly say they do not care. Only the 3% rule is respected. This law increases the risks noticeably. With a high deficit and debt that falls too slowly, we are exposed to risks that send Italy into a recession. A situation caused by a very high public debt. And the growth will be low because our competitiveness is not what it should be, "he points to the telephone.

All the experts consulted coincide with Cottarelli. The problem is the fragility of Italy at the moment, caused in part by the second largest public debt of the EU. During the crisis, public debt went from 99.8% of GDP in 2007 to 132.1% today (about 2.3 billion euros). Lucrezia Reichlin, a professor at the London Business School, believes that the country has two fundamental problems that date back to the 1990s. "The first is growth, the tail of the European average since before the entry into the euro. And this has to do with demographics, but also with productivity. The second is that behind this data there is great heterogeneity in whole pieces of the productive system, concentrated in the southern regions. The key to a convincing economic policy should be to tackle growth, but also these problems of small businesses, "he explains.

Italy stretches the rope of the euro

The chosen address is another. The largest item included in the increase in the deficit, the famous 10,000 million, is destined for citizen income: 780 euros, calculated according to the poverty threshold indicated by the EU. It will be granted as an additional supplement to the income of each family up to that amount, although it can only be used for what the Government considers "moral expense". But that amount could be received each month for a year only a million people, or lengthen it to 6.5 million reducing it 115 euros. A figure lower than the 300 euros per month that 270,000 families now receive the inclusion income that the previous Government launched. Reichlin believes that the measure is only fireworks. "The problem in the south is the creation of work. It is something deeply structural that can not be solved by filling people's pockets with money. On this there is a great demagogy and it will cost a lot of money. "

The Government is armored against criticism and grows in each survey. So political propaganda will continue to blame Europe for all evils. It happened even with the fall of the Morandi bridge in Genoa this summer, reflecting a long stalemate without investment in public infrastructure transformed into a supposed lack of interest in the community (the Government has been unable to sign the decree for its reconstruction 40 days later). But some data will allow to support some theses in that line. The Italian GDP per capita in 1998, for example, was almost 20,000 euros: very close to the German (24,600 euros) and above the average of the eurozone (17,700 euros). However, in 2017 this same indicator was 28,500 euros, compared to 30,000 euros in the eurozone and 39,600 in Germany. The cumulative growth of real production per capita in Italy in 20 years it was 1.15% compared to 26% German. And nothing seems to improve in the short term. Standard & Poor's (S & P) has revised its expectations of GDP growth for 2018 and 2019 to 1.1% (from 1.3% and 1.2%, respectively) downwards. But Tria, caught between two crossed fires, points to a growth of 1.5% in which only he trusts.


The frontal disagreement that is approaching with Brussels, where the Economy Minister has lost its credibility, will inevitably reopen the debate on the permanence of the country in the euro zone. Even Mario Draghi, president of the ECB, went on Thursday to Rome to meet with Mattarella personally and discuss the issue. Lorenzo Codogno, an economist and former secretary of the Italian Treasury, does not hide his concern. "The risk is still low, but it is higher with this decision. The problem is not a deliberate strategy to get out of the euro. They are getting into a situation of crisis, of conflict with Europe and with the financial markets, which will deteriorate and corner them. This Government will not accept a memorandum or a European program. So the exits will be the restructuring of the debt or, if that happens, the temptation to say that they leave the euro. It would be a disastrous decision, but they do not have a link with Europe in their DNA. We have seen that both M5S and Liga have campaigned against the euro, they have written books against him and they have a personal history in that direction, "warns Codogno.

The weight of the Minister of Economy in the Government is almost as irrelevant as that of the Prime Minister himself, Giuseppe Conte, turned into a mere figurehead of a government contract. The League and the M5S, led by the two vice presidents (Salvini and Di Maio), negotiate without having to go through the Council of Ministers, which approves what the two parties decide. It had been decades since Italy had been confronted with a situation of this kind, said the Roman University Luiss Roberto D'Alimonte political scientist. "Tria is a technician in a populist government. The only great weapon he had was to resign, but he can not do it because the risk is that he will be replaced by a Eurosceptic populist, as the League had originally planned. Mattarella knows this and thinks that keeping him there can limit the damage. But the minister no longer dictates the line. He lost his authority from the moment he did not resign, "he says.

Erosion reaches all institutions. In the Parliament, important figures, such as the constitutionalist and PD deputy Stefano Ceccanti, warn of the attack against the Magna Carta that means increasing the deficit at those levels. "Article 81 states that it can only be done for emergency or emergency measures, which is not the case," he says. On the bench opposite, the deputy of Forza Italia Renato Brunetta, economist and man of extreme confidence of Silvio Berlusconi, goes further and completely rejects an economic program that his party had to have shared with the League had they not separated in the last moment "The center-right program was to reduce taxes without incurring deficits and make investments to create growth. But this is a sum of elements that can not be together. The result is being seen with the premium, the flight of capital, the fall in the stock market, the fall of the banks … ", says Brunetta.

The M5S and the League formed a government last June after three months of turbulence. Since then, the additional cost in debt securities issued by the rise in the risk premium has been 700 million euros in 2018 and another 860 million have already been committed next year, according to the Italian Public Accounts Observatory. directed by Carlo Cottarelli. A situation that has put on alert the businessmen of northern Italy, very close to the League, who already threatened to go out to the street to protest. Confindustria, employers employers, now tries to lower the alarm. "We can confirm that the deficit has gone beyond what was expected. But it depends on how it is used: only for assistance policies or also for growth and development policies. That has not been made explicit. Germany has overcome the deficit for years, but the markets did not worry because it was known that they would spend that money well. We must show that the project is credible, "say employers.

Italy, vaunted political laboratory, would not be willing to face the frontal clash if the focus was not placed in the next European elections. The alliances begin to be forged. Viktor Orbán in Hungary; the Alternative für Deutschland in Germany; Marine Le Pen in France, and Steve Bannon, former strategic advisor to Donald Trump, as the animator of the new Eurosceptic craze. Reichlin, in fact, believes that these budgets are the beginning of a change of community direction. "In Europe there are many open items, such as the governance of the euro. They will go to a very broad clash coordinated with allies in other countries. This is only the first stage of a strategy that will lead to a major modification of the Union. Until now we had the motto More Europe for reform. I'm afraid there will be a strong movement in the opposite direction. And there is the future of the euro, with this movement from Italy surely the reform of the governance of the euro will be blocked. I do not see a banking union with this lack of Italian confidence. The euro is at risk because the reforms begun in 2013 will not be completed. "

The last-minute reduction in the deficit, which the economy minister can sell as a small victory to recover domestic credit, will calm the markets. But as the press chief of the prime minister said, Tria already "paints little". The budgets will be presented in Brussels on October 15. Until then, the volume will rise and the accounts will be presented as the prolongation of the dream started on the night of March 4. And later? The last time an Italian executive faced Europe was in 2011. Silvio Berlusconi had spent 10 years in and out of the Chigi palace to the rhythm of the parties at his mansion in Arcore. In that period, the country reduced its per capita income by 3.1%, according to the IMF (the worst data of the EU in that decade), and consumption fell by 8%. The risk premium – and a Troika that exhausted its patience – finally brought down its era in the fall of 2011, when it reached its historic maximum: 574 points. They were different times. It was, above all, another Europe.


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