On Tuesday they met at the "Parlamentino" of the Cnel (National Council of Economy and Labour), the leading Italian experts on public debt, to discuss the opportunity for an extraordinary intervention aimed at drastically reduce the stock of debt, which is now sailing towards 124% of GDP.
The personalities who attended outlined a picture full of questions and obstacles of a technical nature: le difficulties of the operation, in a phase of high economic and financial instability, risk blocking the felling operation in the bud.
Almost all the participants, however, agreed in the basic analysis: the level of taxation weighing on the economy is incompatible with growth, in the short and long term. For this reason, in order to sterilize the tax increases introduced to respect the Community constraints on the deficit, a quick and clear cut of the public debt would make it possible to free up resources for growth, reducing interest expense and bringing the debt accumulation below the psychological share of 100% of GDP.
However, it is in the details that the pitfalls are hidden, not counting any European openings – as are rumored these days – on the management of sovereign debts: Italy boasts levels of public wealth that can be privatized with few rivals in the world context, but the recent rumors so-called "European Redemption Fund" - Note Antonio Guglielmi of Mediobanca Securities -, suggest that public assets could serve as a guarantee for a European fund to which the portions of debt exceeding the Maastricht parameters would flow: movable and real estate assets could therefore not be sold to reduce the debt stock.
The establishment of the ERF would seem to be welcome by Chancellor Angela Merkel but – as a reply Antonio Maria Rinaldi – would entail a huge cost for Italy immobilization of public assets for around 1000 billion euros. An amount probably not available, but not only that: the assets would be blocked, rendered unusable by the Government, which would lose its autonomy and sovereignty in asset management with a view to reducing debt.
In any case, it would be a particularly delicate operation: already in the past securitizations of public assets have yielded far from satisfactory results. Furthermore, in a moment of scarce liquidity and little appetite for risk, recourse to bond issues guaranteed by state assets cannot be tackled lightly: it is the position of Guido Salerno e Joseph Pignataro (BNL). The first proposes the establishment of a Background, to which state assets would flow, the shares of which, placed with social security institutions and asset management companies, would be exchanged for public securities already in circulation.
Pignataro instead proposes a “rebalancing fee” of 300 billion, for a payment that can be deferred and repaid following the gradual disposal of state assets. The tax would mainly affect businesses and holders of financial assets.
In any case, there is a certain skepticism about the debt cut: market conditions would discourage recourse to the sale of assets, making the path of the European Redemption Fund, proposed by the five wise Germans, convenient and politically feasible. The former Treasury minister is of this opinion Vincenzo Visco, who underlined how compliance with the Fiscal Compact and economic recovery can coexist.
Rinaldi is of a completely different opinion: by setting up a newco, which would include non-strategic assets for around 360 billion in its balance sheet, it would be possible to issue bonds complete with "warrants", which would give the buyer a right of first refusal in the purchase of the assets , when the latter will actually be put on the market. The holders of public debt - banks in primis - could buy the bonds issued in exchange for BTPs and BOTs, which would however be exchanged at the issue value, contributing to the balance sheet recovery of credit institutions.
Moreover, the exercise of the option would make the entire operation fair, rewarding the holder of the warrant, which would have to be purchased in advance to access public auctions. According to Rinaldi e Paolo Savona (the creators of the project) the potential to attract high caliber investors and even small savers. Especially at a time when the "renationalization" of the financial markets is reducing the share of public debt held by foreign finance.
Time is running out, and the economic numbers expose a far from rosy picture: over the next twenty years, Italy will have to launch strong repayment maneuvers to converge towards the 60% GDP debt quota. Against a backdrop of recession (and growth that has stalled for over a decade) it is foreseeable that – if the Fiscal Compact is not renegotiated – a possible Italian recovery, in real terms, of 1-1,5% per year, will serve entirely to pay for the maneuvers envisaged by the European parameters.
For this reason, the experts meeting at the Cnel hope for a prompt and courageous "endorsement" on the part of the Government, which produces a convergence of intentions on the need to launch an extraordinary maneuver to reduce, by at least 20%, the 1966 billion of debt which weighs on the growth of the country.
Especially after the executive's disappointing advances on the spending review, which do not envisage a drastic reduction in inefficient public spending, the debt cut is making a comeback.
The spending review – he noted Edward Reviglio (Cdp) - nevertheless has a fundamental role: it is in conjunction with the latter that the process of divestment can be completed effectively: mergers of administrations and local bodies in a long-term perspective can free up the properties and make them attractive for the market. However, these must be able to attract investors. Suffice it to say that the current return on interest-bearing assets amounts to a paltry 0,7% per annum. Too little to attract capital and start profitable business ventures.
