DRAGONS AND TRICHETS: ECB PURCHASES ARE NOT DISCOUNTED
ULTIMATUM IN ROME 48 HOURS FROM THE FRANKFURT DIRECTORY
“Do not take the purchases of securities by the ECB for granted”. While Mario Draghi, governor of the Bank of Italy, pronounces these words at the Paris conference dedicated to "Lessons and challenges of the crisis three years after the fall of Lehman Brothers", Italian government bonds are rolling at a record yield of 5,44 percent, which is 20 basis points higher than Black Friday. The spread between Btp and Bund travels around 356 basis points. The month of truce, made possible by the interventions of the ECB, is now winding down. And the market has already issued its sentence: the Italian maneuver, as it is about to arrive in the Senate hall, is not at least adequate to deal with an explosive situation. Indeed, judging by the gap that widens compared to Spain, whose Bonos now yield 30 basis points less than the Italian ones, the rejection is without appeal. And it also threatens to hit Draghi and Jean-Claude Trichet, authors of the confidential letter to the government in Rome in which the encore maneuver was requested. In this context, Draghi and Jean-Claude Trichet took the opportunity of the Paris conference to let it be known that, when the ECB directorate meets in 48 hours that, among other things, the budget of the operation, neither the outgoing president nor will the incoming one pledge their authority in favor of a government that is doing everything to agree with Jens Weidman, the governor of the Bundesbank, who had sided against the purchases of BTPs on the secondary market "because only market pressure can push defaulting states to change course”.
“WE NEED REFORMS AND DISCIPLINE, NOT THE MAGIC WAND”
DO NOT RELY ON THE ENLARGEMENT OF THE EUROPEAN FUND
This explains Draghi's harsh speech. The governor of the Bank of Italy underlined that "the time has now come for governments to assume their responsibilities and act quickly to resolve the sovereign debt crisis" without relying on external aid. In particular. The governor said that "it would be a grave mistake to place excessive trust" in the expansion of the bailout fund because this "cannot provide a solution" to the basic problem: "lack of budgetary discipline and low growth". A call that takes on a particular flavor after the great emphasis that the Minister of the Economy Giulio Tremonti continues to attribute to the "magic" solution of the Eurobonds. But for growth "we don't need a magic wand, we need reforms".
TRICHET: “A GERMAN-STYLE REFORM OF WORK”
DRAGHI: "A GOOD PROGRAM WILL RESTORE CONFIDENCE"
"We need consistent and credible packages that involve a broad political commitment to increase competitiveness and employment on the basis of jointly decided strategies". Of course, it takes time but "one should not underestimate the impact that a well-designed program could have on confidence and expectations as well as create the conditions for an immediate increase in demand and activity"'. Draghi does not say it, but it is exactly the opposite of what happens in the Bel Paese, in the face of a behavior of the Italian executive that is met with less and less credit. Trichet is no less severe even if, in his case, those countries other than Italy must go to trial, such as France and Germany, which in practice nullified the stability pact at the time, watering down the 3% constraint in the deficit ratio /GDP and 60% debt/GDP. Germany has partially amended itself with a labor reform that everyone should adopt. The solution? If a country fails to make the right decisions in terms of fiscal consolidation, Trichet says, then it should be allowed to be enforced centrally by an economy minister responsible for the whole EU. In the meantime, in conclusion, the ECB will not compromise its credibility to support inadequate policies. As Draghi points out, recalling Trichet's warning, the ECB's bond purchase program "cannot be used to circumvent the fundamental principles of budgetary discipline". It is difficult for a governor to bluff. Impossible for two to do it.
