In Roman park of Caffarella, an oasis of real countryside just a few minutes from the Colosseum, there is a large flock of sheep that goes around grazing freely. It advances compactly and, at close range, the noise of the grass being bitten and torn is distinctly heard. The milk becomes excellent pecorino, sold near the sheepfold.
Sunday October 25, which will be remembered as the last of freedom before new partial (so far) lockdown, concluded the sale of cheese and established my profession, the pastor asks: "How are we with the virus?". Bad, I reply, but we were in worse shape in March-April. As proof, I'll show you some on my mobile phone graphs on the true number of new infections, estimated on the basis of official and unofficial deaths from Covid-19. Graphs similar to the one reproduced below.
«Why don't we ask for the MES money right away? We need it». It was his pragmatic conclusion. Yeah, why don't we ask them? Anyone who, like the shepherdess, has to keep the income and expenditure accounts of a rich activity under control on all fronts, except the economic one, quickly understands that, at this point, Italy must count on any form of cost savings. Even more so if it is in the item interest expense on the huge mountain of public debt.
Fedele De Novellis, a friend and colleague at REF Ricerche, has broken down the major one interest expenditure on the public debt that Italy supports compared to Germany and for almost two thirds (29 billion out of 46) it is explained by the spread on rates. Only slightly more than a third from the greater public debt (which, in relation to GDP, in Italy is more than double that of Germany). Of course, there is a logical and economic link between the level of debt and the level of interest rates: higher public debt equals higher risk premium. All the more reason, then, why not limit some of the higher cost of Italian debt with ESM funds?
There are those who argue, not without valid arguments, that the ECB is already thinking about lowering the cost of public debt. Since the ESM loan was approved by the Eurogroup on 9 May, which for Italy can reach almost 36 billion euros (2% of 2019 GDP), the 1,9-year Treasury yield fell from 0,7% to XNUMX%. Thanks to the purchases made by the Bank of Italy within the two Frankfurt programs (the reinforced APP and the PEPP). But thanks also to the newfound political unity of the European Union to face the economic consequences of the pandemic.
Therefore, if previously almost two percentage points of interest could be saved on the 36 billion, i.e. 720 million euro a year for ten years, now the saving would be “only” 0,8 points, i.e. 290 millioni (again for ten years; in these calculations it was assumed that the cost of the ESM loan also decreased, from slightly positive to slightly negative).
“Solo”: and it immediately comes to mind the wisdom of shepherding. But if we asked anyone around these days who sees the little recovery they had managed to achieve in their business vanish due to the new social distancing measures, the answer would be identical: let's take this money MES and with what we don't spend in interest we give a hand to those who suffer economically from the epidemic.
More so than those money would be provided unconditionally: just spend it on health care. And the Italian public health budget is well over 110 billion a year. Just collect a few invoices or salary slips and send them to the MES.
All agreed, then? «S'un foss», they would say in Romagna. If it weren't for the risk of stigma. The stigma? And what is it? The shepherdess would ask.
Stigma is a word imported into Italian from Latin, exactly as it is. And it means brand. Brand in what sense? For example: trademark is a form of guarantee on the origin of the production. The Germans made a fortune off the brand, synonymous with Teutonic quality. And all the companies that try to establish their brand with advertising are well aware of this.
Even from "stigma" comes "stigmata": the divine signs that appear on the bodies of saints (not only of the Christian religion). From good to excellent. Why then should we be afraid of stigma?
In economics and finance, stigma is a kind of stigma. More than a sign, it's a scar. Which is imprinted on those who ask for help because they cannot do without it. Because the very request for that aid is interpreted by creditors as a sign of extreme difficulty. If, following the request for ESM money, the stigma effect were triggered on the country's debt, the bonds of the Italian Republic would be sold and the benefit of the lower cost of the ESM would become a curse through the increase in rates on all new issues of debt.
He talked about it extensively in this regard too the Governor of the Bank of Italy, Ignazio Visco, guest in September of the Festival of Economics in Trento. But he also clearly said that the ESM is economically advantageous, not only because lower rates are paid, but also because a slice of public debt, however small, should not be collected on the market. And then, with the safety net set up by the ECB, no one would dream of betting against BTPs.
In fact, the exact opposite could happen: by asking for funds from the ESM, Italy would show unexpected wisdom, deserving the acclaim of investors. A stigma on the contrary, as Paolo Onofri suggested in a recent Prometeia webinar on this very issue. An indication in this direction came at the end of May: when the news spread that Cyprus was intending to ask for ESM aid for health care costs, Cypriot stocks shot up.
If, in light of all this, you are still against the use of MES funds, go and explain it to the pastor in the Caffarella Park. And fear not: dogs don't bite. Sure, rams might not take a liking to you.
