How far can the spread go? “I try to give an answer based on my past experience in contact with the markets. The spread will therefore decrease if and when the operators are convinced of the defeat of the sovereign forces. This is a political fact, not a technical assessment. And that's why the big picture doesn't leave me alone. In fact, I'm very worried." Talk like this Mario Noera, professor of Finance and Economics of Intermediaries at Bocconi, a rich curriculum of banking experience, now a member of the executive committee of Bper. Always skeptical of crisis therapies based on austerity. “But I'm in excellent company – he comments – from Lawrence Summers to Olivier Blanchard”.
Why so much concern?
“The big picture reminds me of Sleepwalkers, Christopher Clarke's book about the crisis that led to the First World War. Fortunately, we are not at this point. But, just as then the various nations lost years behind petty diplomatic maneuvers, today time and energy are wasted debating behind a few decimals of growth or small questions of detail instead of addressing the heart of the problem".
Or?
“The European Union, essentially, has not yet resolved the problems that emerged with the Greek crisis. Then, almost suddenly, the Community realized its own fragility. The edifice was standing, in ordinary conditions, but was destined to topple in crisis situations due to the absence of fiscal policy, which remained in the hands of the nation states. The markets have taken note of this and since then the situation has not substantially changed in this respect. The European Central Bank, using the tools at its disposal, intervened on the monetary policy level. But, in the meantime, under the pressure of the emerging social unease, the problems have become more evident and the sovereignist forces have grown, taking advantage of the political vacuum that has arisen. In Portugal, where the socialists under the leadership of Mario Centeno have been able to occupy the space with a growth policy, populism has not taken root”.
The lesson is provoking a European response. The Franco-German tax reform goes in the direction of a cautious pooling of resources. Or not?
“It seems to me yet another missed opportunity. The Merkel-Macron plan is dominated by the suspension clauses: the first concern is to immunize the body of the Community from possible infections, but almost nothing is said about how to prevent or eradicate diseases. From that point of view, a reflection on what Paolo Savona argued would have been useful. But the opportunity, for now, has been wasted”.
Let's try to get out of the dead end…
“I refer to a recent work by Professor Sergio Cesarano and Antonino Iero who examined the weight of interest expenditure compared to other factors at the origin of the Italian public debt. The data shows that between 1980 and 2017 the public debt, in terms of weight on GDP, grew by 76% due to interest expenditure equal to 275 points, 7,24% per year. Referral to the study to evaluate the impact of the individual items, from the large amount of the primary balance to the modest amount of privatisations. What I am concerned with is to underline that the question of public debt is above all a question of interest rates”.
This is what the defenders of rigor claim: cut down the debt, cut down on interest payments. Or not?
“As we experienced in Italy, the economy is more depressed than anything else, rendering adjustment efforts in vain. Unfortunately, however, instead of pressing the EU partners with proposals aimed at investments and the real economy, the government leaders have said and repeated banal slogans and defended the contents of the maneuver with a dubious impact on aggregate demand”.
In short, the new protagonists are not up to par, the political class, see the Democratic Party, who left the polls defeated, does not have the numbers for a possible change of course. So?
“I'm worried, there's no denying it. Even if there are signs of an awareness of the need for change. Also because new cuts in spending, in the event that one wanted to resume the austerity policy one day, would lead to truly dramatic cuts, in healthcare and in social security. How to avoid it? We need a new pact of trust between Italy and Europe. But for now the important thing is to avoid hitting the wall. As governor Ignazio Visco warned, the increase in the rate hike risks leading to the need for a new increase in the primary requirement”.
