Professor Vaciago, it's done. After the green light from the European Council's Advocacy at the WTO, Mario Draghi has freer hands on Qe. “Alt. Let's not confuse Quantitative Easing with OMT. And let's not forget that the Spanish lawyer of the Council of State has only issued an opinion on the legitimacy for the purposes of the treaty of the purchase plan approved in September 2012. The sentence will still take a few months. Then, in a year's time, the Karlsruhe Court will rule on compliance with the German Constitutional Charter. In short, as usual, the European mechanism is slow and leaning towards the past".
Thus speaks Giacomo Vaciago, long-time economist, on the eve of the longest week in the history of the European Central Bank. According to him, the start of the Qe is by now a given, despite the more or less specious resistance and objections. “But the serious problem is another – he adds – Will it be enough to restart the European economy, now the victim of a violent credit crunch? It will not be easy".
Much will depend on the characteristics of the operation. In your opinion, what form will European-style Quantitative Easing take?
“Let's start from the OMT. In that case the ECB works on behalf of the governments of the Eurozone. The principle is that, faced with a request for help from a state in difficulty, the central bank activates a bailout mechanism with the consent of the other states. In this regard, the Attorney's Office takes care to recommend better reasons, from a legal point of view, for the methods of intervention. But one thing is not up for discussion: in this case the ECB is helping policy choices. It makes no sense to ask whether it is for or against Merkel, in short, because the ECB in this case will only move if Merkel asks for it".
How is the launch of QE different?
“Governments have nothing to do with it here. This is an operation that concerns only and exclusively the mandate of the ECB which is to maintain the level of inflation just below 2 percent, an objective that has been missed in recent years. The ECB hasn't been doing its job for a long, too long time, so it has created unemployment due to lack of inflation, in the order of at least one million units. An unemployed person could legitimately sue the ECB claiming that his situation depends on the failure of the central bank to comply with the mandate”.
Therefore the Central Bank must not ask anyone for permission…
“Woe if he did. After all, today's situation is very different from that of 2012, when the OMT plan was drawn up. The spread, today, is not a problem. The real crux is inflation which does not exist and which conditions the attitudes of all economic subjects. Not even the decline in oil is seen as a positive fact, in a situation like this. Yet this year I will save 2 euros in petrol and heating”.
Perhaps the uncertainty about how Draghi's bazooka works weighs heavily. What stocks will he buy? What effect will it have if the ECB limits itself to buying issues not lower than AAA-?
“And who sets this constraint? And with what logic? Gossip aside, Qe can only be a market operation and, as such, must respond to market logic. The only constraint is to offer stocks that the market is ready to absorb. And the only condition to be respected is to bring EU inflation, today too close to zero, to 1,8% in 2017. And it won't be easy. As confirmation that this is a market operation, unlike the OMT, this time a limit must be set, as Draghi already anticipated when speaking of an ECB budget of 3 trillion. In summary, I expect a statement of this type: starting tomorrow, the ECB will start buying bonds at a rate of 200 billion a month with the aim of bringing the central bank's target closer, which was not chosen at random. Those who say that the goal of zero inflation would be better are wrong. In that case, indefinite stagnation would be ensured.”
But what does the ECB risk by buying lower quality securities with its hands? Not to name names: Btp, Bonos and so on?
“But how many central banks have you seen fail? The risk does not exist, because the ECB buys a security and brings it to maturity".
But if a State fails.
“If Italy or Spain fails, Germany would not fare well anyway. In fact, it's better for the bonds to remain parked in Frankfurt than to wander the markets. One thing is certain: central banks will be the last to fail."
Speaking of banks, the Italian credit situation is certainly not optimal. How to react to the recent letter from European Supervision?
“Unfortunately, the season of capital increases and capital strengthening is far from over. As it was known for a long time. In the United States, they first restored the balance sheets of the banks, then they put the bankers in jail. Finally, they put Qe in the works. Here we have not cleaned up the banks, we have carefully avoided judging the bankers. Today we proceed to Qe. Ours is a non-capitalist financial structure”.
The management of the Mps case was certainly not exemplary, to go lightly.
“I remember Minister Giulio Tremonti in the courtroom arguing that lending money to MPS was a big deal because no one else gave you 9 percent interest. The other countries put the money in the banks, cleaned them out and resold them to private individuals. We pretended to get a good deal. Now the European Supervision has arrived.
Meanwhile, the bad debts of the system have risen to 184 billion with a possible realizable value of 88, according to the ABI.
“How can you be so optimistic? Let's not fool ourselves: the recovery will begin when real estate values start to rise again. And this will happen when there will no longer be a majority of sellers who are obliged to deliver, but the buyers will see each other again. There will be no trend reversal until then. In the USA, moreover, it went like this: the Case Shiller index on the real estate market started to rise again after the start of the Qe”.
In Europe, in truth, there is the example of Spain.
“But Spain is governed by a serious right that has done right-wing things. In Italy we have had right-wing governments that have not done them. Who knows if the left will do it”.
Can the various recovery plans work, such as the one proposed by Astrid, with the blessing of Franco Bassanini?
“There are many plans, I believe that the ECB's research office, very seriously, has examined them all. But I think that to understand what will happen we need to read the German newspapers which have been dealing very seriously with the future of the Union for two weeks”.
