The Brussels Agreement? “Come late. And I'm afraid that's not enough." The letter from the Italian government? “A bluff. The serious things have already been approved, the rest seems to me only destined to inflame social tensions". But is there really not a note of hope? “The world is approaching, I don't know how fast, a new Bretton Woods. I think that the solution to the problems transcends the European dimension itself”. Mario Noera, Bocconi professor of law and economics of financial markets, he is convinced that the Brussels night only half solved the problems. Indeed, decisions on banks "have a schizophrenic character and risk having dangerous effects for Italian banks".
Why a schizophrenic character?
“There has been much discussion in recent years about the procyclical effects of interventions on bank capital. Already at the time of the 2007/08 crisis, Basel 2 had this effect on bank accounts. For this reason, there is ample literature on the opportunity to act in the opposite way: to strengthen capital in favorable conjunctures to create a buffer to be used in the most delicate phases. In reality, in the first emergency, these good advices were forgotten”.
The result?
“It will certainly be pro-cyclical. First of all, it will have effects on government bonds because the banks will in practice have to get rid of part of the inventory. But this can be remedied by the commitment of the Community institutions if they undertake to replace the banks in the purchase of securities. Then there is a problem that is difficult to solve in terms of structures: the Foundations are certainly not in a position to deal with capital operations of this size”.
Not to mention the credit crunch. The director general of Confindustria, Giampaolo Galli, has already sounded the alarm.
“The danger was already real. Now it is more. There is another effect: an excess supply of bank stocks is created at a time when the markets are reluctant to make new purchases”.
The risk, paradoxically, is that instead of offering guarantees there is a risk of aggravating the crisis. Is that it?
“In reality, it was not easy to find alternative mechanisms to the one adopted if one wanted to focus on market parameters. Unfortunately we are faced with ambiguities that are paid for: on the one hand we want to create an umbrella guarantee, on the other we risk the opposite effect based on data influenced by the trend of the cycle”.
Is there a lesson to be learned?
“The trust of the markets is not won only thanks to financial engineering. Fortunately, this is also needed. A necessary intervention has been carried out on the bank accounts which has prevented, for now, that a systemic crisis arrives from that side. But in the absence of a strategy that gives life to a standing geometric construction, there is only the risk of having set up an algebraic equation”.
In what sense?
“The same result can be obtained whether the requirements for the weakest are raised or if those of the most solid partners are lowered”.
In short, the injection of money into the fund alone does not guarantee the solidity of the system. What to do then?
“To achieve this result, it is necessary to strengthen the governance of the economy, the starting point for launching a growth policy that is somewhat lacking throughout Europe. To do this, we need to address the issue of harmonizing tax policy. In the absence of compensation on the development front, a recovery policy leads nowhere: the cuts must be compensated for with ad hoc measures in the sectors that have growth potential”.
In the absence of this, therefore, is the recovery triggered by tonight's measures likely to be short-lived?
“We have seen the problems associated with bank decisions. We will see the effectiveness of the financial engineering tools that emerged from the summit. In part, these are insurance instruments, in part they can be assimilated to the CDO family. Certainly, it takes much more than financial engineering to restore confidence in the markets”.
A proposal?
“My opinion is that we need a European government of the economy in which the issue of bonds is the sole responsibility of the EU. But we are very far from this goal. And it doesn't necessarily stop there."
That?
“I believe the time is approaching for a new Bretton Woods. The lesson of these days is that there is a strong international will, both inside and outside Europe, to prevent the euro from being sent adrift. For this reason, I believe that an overall solution will be reached in which creditors will participate, such as China, who have no interest in the dissolution of the euro”.
But does this imply a loss of European sovereignty?
"Partly. I believe that this process must be mediated by international institutions, ie by the Monetary Fund. I believe that financial interventions in the euro area will be managed through the IMF”.
In all of this there is the letter of commitments from the Italian government. How do you judge it?
“A bluff. The more serious proposals are already law. And the others are impossible. Indeed, very dangerous on a political level. I believe that the government is preparing to unload the responsibility for the failure on the oppositions for pure electoral calculation".
But the requests come from the European Union. Or not?
“I think it is right to ask for more flexibility in work, including the freedom to lay off. But this must take place within the framework of a policy of strong fiscal and social security incentives concentrated in new economic activities. So it can work. But I don't think that a government with a two-vote majority, opposed by its economy minister, can pursue the policy it did not pursue when it had a majority of eighty votes”.
