Andreatta, the unforgettable lesson of a "good economist" and statesman

A new book by Filippo Cavazzuti – “Italian financial capitalism. A Phoenix Arab? Tales of economic policy” – published by goWare. The book, both in ebook and paper versions, contains among other things the profiles of five great Italian economists that the author, himself a well-known economist, had the privilege of knowing, namely Nino Andreatta, Guido Carli, Luigi Spaventa , Paolo Sylos Labini and Isidoro Albertini. Courtesy of the publisher and the author, we publish exclusively the chapter dedicated to Andreatta, a master of economics and life and an illustrious statesman, to whom we owe, among other things, the divorce between the Treasury and Bank of Italy and the preparatory deeds of the Italian privatizations.

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The clearest memory I have of the professor Nino Andreatta it is the absolute continuity and coherence between his thinking as an economist devoted to economic and financial policy and his action as a politician and government man. He was used to considering political economy as a discipline that he had to dialogue with, in addition to mathematics and statistics, also with legal, historical, political and moral disciplines. He did not share the cultural self-referentiality of many economists. He didn't respect the "yes men".  

Minister of the Treasury in the Spadolini government (1981-1983)  

Professor Nino Andreatta assumed responsibility for the Ministry of the Treasury when the annual inflation rate was around 20 percent, and the average annual rate of Treasury bonds and BTPs issued to finance treasury deficits and government requirements was also close to 20 per cent, resulting in a zero or negative real yield. When he left the government in 1983, the two rates were 10 and 12 percent respectively, with a positive real return.  

The well known Andreatta's aversion to the public deficit (at the time treasury requirement) was not motivated by uncritical and pernicious adherence to treasury view of the British government in the 1930s, against JM Keynes's proposal to increase public spending against the economic trend, when it was argued that such interventions would cause a "crowding-out effect" (crowd out) with regard to private spending, but as a well-versed connoisseur of the fiscal history of the Italian state, he argued that: «The problem we are facing, like all public finance problems, is political and a problem of the conception of the state».

A significant Schumpeterian annotation from the early years of the twentieth century should be noted: «The budget is the skeleton of the state stripped of all fallacious ideologies […]. First of all, the fiscal history of a people is an essential part of its general history". It is the authority of the state, potentially compromised by violent and unexpected financial imbalances, that is being posed at the center of public finance control and which requires the involvement of other state institutions such as the Bank of Italy.  

For Andreatta, in fact, the control of the state treasury requirement it was not just a matter of parliament and government, but also of the Bank of Italy, to which he addressed himself directly and without political and/or party mediation, but assuming full political responsibility, writing to Ciampi on 12 February 1981: 

“I have long since developed the opinion that many problems of monetary policy management are made more acute by an insufficient autonomy of the Bank of Italy's conduct with respect to the financing needs of the Treasury”.

Not a mere technicality was "divorce", but the need to safeguard the authority of the state in the control of public finance imbalances which required the involvement of the Bank of Italy, which was then accused of influencing, through the maneuver of monetary policy and interest rates, the parliament on issues of public finance balance. Perhaps there is some truth to it, but it is also true that, by stalling the parliament, the Italian public debt rose from 53% of GDP in 1981 to 100% of the same in 1990. It is the burden that we have been carrying around ever since that on international markets to question the sovereignty of the state.  

Lastly, let us not forget that the cultural and political premise for the "divorce" was the minister's aversion to administrative and bureaucratic controls, Andreatta loved to argue, antagonizing the entire state general accounting department and the general directorate of the treasury: "One gets the impression that, for a number of reasons, public finance is shrouded in mysterious rules». Clear reference to Amilcare Puviani than in his book financial illusion theory (1908), maintained that: «The balance sheet says much more or much less, as you like». 

As Professor Carlo D'Adda recalled, also in the Calvi-Banco Ambrosiano case, Andreatta did not seek party mediation, but addressed the pontiff directly. Here I only mention the fact that the firm decisions taken then allowed Minister Andreatta to reaffirm the authority of the state and conclude the speech he delivered on 8 October 1982 in the Chamber of Deputies with the following words that many have forgotten today, but feared at the time:  

"Italy is not a banana republic; this story, like others that are before us, should remind us that firmness is not the worst of roads”.

Instead, the "banana republic" Andreatta was excluded from any government post for ten years: until 1993, when he became foreign minister in the government led by Carlo Azeglio Ciampi. For their part, the Red Brigades dedicated a substantial dossier to him in which they proposed to «destabilize Andreatta» as an exponent of the global imperialist system. 

Minister of Foreign Affairs in the Campi government (1993-1994) 

When, in 1993, Professor Nino Andreatta assumed the responsibility of Foreign Minister, the spread between the Italian BTPs and the German Bund was around its historical maximum, equal to about 630 basis points. Three years later it was 200 basis points, also thanks to the privatization policy. 

In fact, the agreement between the Foreign Minister Nino Andreatta and the European Commissioner for Competition, the Belgian Karel Van Miert, signed on 29 July 1993, set the conditions for the reduction of the spread, which at the time was mainly due to the reform of the liability unlimited Treasury towards public debt that it had well exceeded 110 per cent of GDP. 

To understand the historic significance of this agreement, it should be remembered that the previous year (1992), with a decree-law of the Amato government, state holdings were transformed into joint stock companies Iri, Eni and Efim. It should be added that the decree-law proposed both the assignment to the Treasury of the shares of the privatized entities, and the power to sell individual companies, branches of companies also through mergers and incorporations. In this version – which was approved with a vote of confidence – the Treasury maintained both the ownership of the shares transferred to it and the relative power of command which otherwise it would have ceded to the Minister of Industry; power to which were added the «special powers» of the Treasury which are still used today (see Finmeccanica and Telecom). Thus it was that the public bodies transformed into joint-stock companies came under the rule of the law for joint-stock companies and the rules of the civil code.  

It had in fact emerged clearly the serious debt situation of the new spas under public control. At the end of 1992, Iri spa presented a net financial debt of 21.654 billion lire; Eni spa financial liabilities to third parties for 8.271 billion; Efim spa in turn exposed debts of around 9.000 billion lire.  

In the case of Iri spa, on the financial markets there are fears that its transformation into a joint-stock company would constitute "of default" events for contracts with foreign banks which could have resulted in the request of the lending banks for the early repayment of outstanding loans ( about 4.200 billion lire). To avoid this eventuality, Iri spa informed Ministers Guarino and Barucci that it would have been appropriate to send "reassuring messages" to the financial markets international organizations through an official declaration by the Minister of the Treasury aimed at reaffirming the character of "public entity" of the new companies born from the transformation, at least as long as the State maintains direct or indirect control. It is obvious that if the government (with the Minister of the Treasury at the forefront) had declared that Iri spa was still a "public entity" which continued to enjoy the State guarantee on its debts, it would also have increased doubts about the sustainability of the Italian public debt.  

Appropriately, the government did not move in this direction, but signed, on the initiative of the Andreatta Ministry, the agreement where it is written:  

"For complete compliance with the agreement [...] the shareholder Tesoro will have to undertake the most appropriate decisions to reduce its shareholding in IRI in order to eliminate the effects of its unlimited liability pursuant to article 2362 of the Civil Code". 

It was then discussed whether the content of the letter dated July 29, 1993 to Van Miert was a simple acknowledgment of the binding nature of the cited article of the civil code or whether, instead, it was an act of economic policy set up and desired by the minister. There were many pressures on the government by IRI for the so-called "deactivation" of art. 2362, also for the purpose of saving IRI itself. But Andreatta's letter not only speeded up the times of opposition, but went well beyond the effects of the cited article of the civil code.  

The same agreement also worked in favor of reducing both the exposure to default risk of iris spa, following the threat of reduction of the institution's creditworthiness by the credit system, and the risk associated with the possible exercise, by of the international creditor banks, of the faculty of early repayment of foreign currency loans (about 4500 billion), and of the general uncertainty of the continuation of the credits granted by the credit system to iri spa (about 26 thousand billion) and to the group (over 72 thousand billion ). This expectation on compliance with the commitments undertaken at the Community level helped to reduce skepticism about Italian privatization policies and the spread with the German Bund fell from 575 basis points in the second quarter of 1993 to 384 in the third quarter and continued to narrow for a few more quarters.  

Andreatta economist 

In his capacity as an economist and authoritative politician, Professor Andreatta he loved confrontation with other political forces which he listened with interest, curiosity and often with painful patience, just as he solicited comparison with other disciplines for which he showed willingness to be intellectually contaminated. 

He was a "good economist" in the sense outlined by Keynes in his 1924 essay, politicians and economists, dedicated to Marshall; or that «a good economist or even just an economist sure of the fact of him» is the one («rarissima avis») who must have a rare combination of talents: 

It has to be in a certain way, mathematician, historian, statesman, philosopher; handling symbols and speaking in words; see the particular in the light of the general; touching abstract and concrete with the same wing stroke of thought. He must study the present in the light of the past and in view of the future.  

I'm sure Professor Andreatta would be very critical of the study plans of the faculties of economics that produce "single-dimensional economists" unable to dialogue with other disciplines. The professor. Andreatta, as a statesman, was able to grasp with intellectual promptness, political and operational courage, some knots to untie to avoid the financial instability that threatened the economy, Italian politics and ultimately the authority of the state. He consciously paid every price.