An article by Alfredo Macchiati on FIRSTonline has already accounted for numerous critical issues contained in a work on Italexit published by Mediobanca Securities which includes among its authors, in addition to the analysts of the house, also Marcello Minenna, the Consob official who for a few days was councilor in Rome in the Raggi junta. To Macchiati's observations, we add another which, in our opinion, leads us to draw conclusions opposite to those of the authors of the work.
The point is very simple. According to Mediobanca, in the event of an exit from the euro and subsequent devaluation, Italy would record a loss on its securities that cannot be redenominated in the new currency, or an increase in the equivalent in new lire of the amount to be repaid to the investor who has the right to be reimbursed in euros. However, there would be a gain on the securities that could be redenominated. This last statement is not correct, because the devaluation of securities converted into lire would give rise to neither a gain nor a loss.
La renaming, provided that it is really possible, it would have the effect of avoiding a loss – the one that instead occurs on securities that would remain in euros or in third currencies – but in no way would it give rise to a gain. From this it follows that the central affirmation of the work is not true, according to which Italexit would not lead to a sharp increase in the debt/GDP ratio, but would even give rise to a small gain, quantified at 8 billion.
In a forthcoming work with Lorenzo Codogno, let's try to get it right. Let's take the three key hypotheses at the basis of Mediobanca's work for granted: a) that securities issued before 2013 may be redenominated, the year in which the Collective Action Clause (CAC) was introduced which explicitly prohibits redenomination; b) that following Italexit the lira devalues by 30% (which means that the price of a lira drops from, say, one euro to 0,70 euro); c) that Mediobanca's estimates regarding total government liabilities that cannot be redenominated are correct (including derivatives at market value and securities issued in third currencies): these liabilities amount to the tidy figure of 1.092 billion euro.
Well, with a 30% devaluation of the lira, the cost in devalued lire of those 1.092 billion euros would increase by 42,9%, i.e. the percentage of the appreciation of the euro against the lira (the reciprocal of 0,70 minus one ). In monetary value, assuming an initial exchange rate of 1 to 1 between the euro and the new lira, this means that, following the devaluation, the debt would increase by 468 billion lire, which is 27 percentage points of GDP. Then the report debt/GDP ratio would go from 133% to 160% overnight. Not really a big deal, nor anything worth rushing for.
It may also be worth noting that, according to Standard and Poor's, a redenomination would be treated as a default, with all the consequences of the case on the credibility of the country and therefore on the possibility of refinancing the public debt on the market. Here, then, is also the hypothesis that old titles can be renamed without suffering too serious consequences.
In this scenario, with no renaming option, debt today at 133% would increase by 42,9% (always assuming that the lira devalues by 30%): +57 percentage points of GDP. The debt would therefore skyrocket to 190% of GDP. Let's hope that Mediobanca and also the economists close to the 5 Stars will refine their analyses. We all get involved.
