The Euro damages the Italian economy, it is unsustainable. The governor of the Dutch central bank says so
Romano Prodi promises inflation to tame the Italian public debt. But the Germans disagree, and neither do the Dutch: Klaas Knot, governor of the Bank of Holland, scoffs at the founders of the Euro and claims that the single currency is a disadvantage for the Italian economy. As a remedy, it has nothing to offer: not the consent to the ECB's expansive monetary policy, not a federal budget (indeed it demands that Italy reduce its public debt and at a sustained pace), not an expansive fiscal policy in the Northern countries, while saying he is aware that this makes the euro unsustainable. His goal is to avoid Nexit, that is to prevent Holland from separating from Germany, when the Euro will no longer exist.
A strange nation, Italy, whose fate is dictated by the debate on the single currency but which, at the same time, ignores it. Months to blather that the money from the Recovery Fund would have saved us and then, suddenly, Prodi comes to tell us that "they are a premise for future improvements, but their positive outcome will certainly not be immediate". While Bundesbank President Weidmann points out what the readers of Atlantico Quotidiano already know : that "Europe's money" is an off-balance-sheet national debt.
But do not worry, Prodi was immediately ready for the new story: since the American Federal Reserve "solemnly stated that its main objective is to promote growth and employment, even at the cost of causing a lasting increase in inflation", consequently the depreciation of the dollar will force the ECB to follow it and inflate (!). And therefore celebration because, writes Prodi: "In the Italian case, the weight of our enormous debt has no chance of being contained except with the help of rising inflation". Amen.
But no. Not only did the usual Weidmann just grunt that "monetary policy must be normalized". But even the 'good German' in the ECB Council, Isabel Schnabel, said she considered the Fed as something other than the ECB and the depreciation of the dollar as a "good sign". Above all, Schnabel said he considered the current distribution of purchases between the different Euro Member States to be adequate, on the basis of the 'capital key' and here we go to the heart of the dispute before the Karlsruhe Court, which is far from over. and, indeed, it promises to dominate the choices of the ECB for a long time to come. With many greetings to Romano Prodi.
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Speaking most clearly of all was the governor of the Dutch central bank, Klaas Knot. The good man, who speaks Italian and seems to have knowledge of the facts, gave a great speech on 1 September and granted a long interview for clarification .
He begins by mocking the Romano Prodi: “They expected that the economic differences between the Member States would be reduced over time, thanks to the introduction of the Euro. It didn't happen ”. Indeed, "the absence of an exchange rate between the Euro countries is an advantage for the stronger economies, while it is a disadvantage for the weaker economies" (!), To the point that "success [for the 'Holland] of the single market is based on the Euro ”(!!)… And Borghi della Lega does not say it, the governor of the Dutch Central Bank says it (!!!). The confession is so complete that it is worth quoting in full:
“Thanks to the euro, the Netherlands enjoyed a stronger competitive position than if we still had our own currency. Compared to southern Europe, but also to the rest of the world, thanks to the weaker euro exchange rate. And this increases our exports. This is how we in the Netherlands get such a huge trade surplus: we export much more than we import. This generates higher operating profits for businesses and also increases tax revenue for the Dutch state. It could be said that the euro always gives a small boost not only to the Dutch economy, but also to the Dutch treasury. For a country like Italy, where productivity growth is lower, the opposite is more or less true . At the risk of oversimplification: the absence of an exchange rate between the countries of the euro area is an advantage for the stronger economies, while it is a disadvantage for the weaker economies ”.
After that, Holland would benefit from the single market even without the Euro, because "small and open economies benefit more", but much less than today.
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This would theoretically have a price. In the first place, a monetary policy "that can contribute to excess debt, or to the stellar growth of house prices", despite the good Klaas strongly opposed it for years, in the ECB council alongside his friend Weidmann, an opposition that he please reiterate today for the future. Here he has nothing to offer.
Secondly, the requirement that "strong economies occasionally intervene to help weak ones": if they had not done so, with the Troika in 2010-11, "today we probably would no longer have a monetary union". [*] The governor is particularly interested in insisting on 'occasionally': “structural [= permanent] transfers of wealth generally spoil the atmosphere. Not only for payers, but also among recipients, annoying feelings of inferiority can quickly arise. This can be observed in countries where wealth is transferred between regions. Let's take Belgium and Italy for example ”; and it is precisely for this reason that he promotes the Recovery Fund : "it is temporary, there are no direct transfers between countries, nor do countries take responsibility for mutual debts (…) its strength lies precisely in the fact that it is one-off and temporary, and I mean it ”. [*] The reader will not have overlooked that by 'helping' we mean the Troika, which 'helps' countries in crisis to stay in a currency that' is an advantage for the stronger economies, while it is a disadvantage for the stronger economies. weak'.
Speaking of the Recovery Fund , he mentions conditionality (obtained by Merkel and Dutch Prime Minister Mark Rutte) and specifies that, "weak countries must implement reforms" and European fiscal rules will have to be imposed again, placing particular emphasis on reducing of public debt: "We must pay more attention to the levels of public debt … countries with higher levels of public debt should make greater efforts to reduce their debt ", compared to what happened before Covid . Not only that, this will have to be done by safeguarding investment spending, thus proceeding entirely through new taxes and cuts in current spending; the reader should note that we are not dealing here with the famous 'golden rule' , that is the exclusion of investments from the calculation of the deficit, since the governor insists that the debt must go down anyway. He also gives the names: "With a debt of over 150 per cent like Italy and Greece, there must be a return to 60 per cent". [*] In short, Knot is saying that in order to get the new national debt to be written off-balance sheet one-off (which is the only advantage of the Recovery Fund , as per the aforementioned observation by the President of the Bundesbank Weidmann), Italy should of its existing national debt. In other words, he is saying that the Recovery Fund is a little more sophisticated MES. Here too, he has nothing to offer.
Thirdly, Knot asks his fellow citizens for their willingness to grow their economy a little faster: "The point I want to emphasize here is that these reforms are more likely to succeed if even the strongest economies do their thing. part". This would mean harmonizing corporate taxation in Europe and accelerating wage growth in the Netherlands. The governor tries to spice up the pill, recalling that having reduced corporate taxation so much has resulted in excess taxation on income from work, which has fueled growing Dutch Euroscepticism and, he says, would jeopardize even the freedom of trade. But frankly, it is laughable to think that The Hague is giving up its competitive level of corporate taxation. Here too, the governor has nothing to offer.
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He has nothing to offer and is the first to realize it:
“Let's be realistic: this will take time. Even with the right policies in place, countries like Greece and Italy will most likely take decades to get to where they need to be. In the next few years their public debt levels will still be too high to withstand another recession without adopting far-reaching austerity measures… This means that there is a risk that these countries could fall behind again ”.
Which would push them out of the Euro anyway. Alternatives? One, to further cut the wages and salaries of Italian workers, but he himself says it is impractical. Two, do new austerity to Monti, but he himself says it would only produce further recession. Three, to restructure the Italian and Greek public debt, but he himself writes that it would push the two countries out of the Euro ("the devaluations of the public debt would lead to significant losses for these local banks and could also trigger capital flight, constantly putting jeopardizing the country's euro membership ") and would be conceivable only under conditions that do not exist today:
“Debt restructuring is possible only under strict conditions: bond ownership must be diversified; there must be an honest analysis – read: depoliticized – of debt sustainability; a firewall to prevent the contagion of other euro countries; and, if other euro area countries are creditors, the treaty must be amended. Very complex (…) at the moment, the conditions are not met in the euro area ”.
Moral? Klaas Knot: "this will require a great deal of serious reflection in the years to come", as all this "is waning public support for the euro" and "making the euro unsustainable" … does not say Bagnai della Lega, says the governor of the Dutch central bank.
Is that a problem? Well, Knot hints at the benefits of the EU ("geopolitical risks, refugee crisis, climate crisis. You don't have to be a Europhile to know that we can address these transnational challenges better at the European level than at the national level"), but does not assert a their dependence on the existence of the Euro, because it is not a fool. The question is money, he said it clearly, the success of the single market for Holland is based on the Euro and he had to do so much (“I consider it my job to provide a sober analysis of costs and benefits”). But the Dutch have to decide: “Central bankers like me aren't the ones who have to make those decisions. It is up to politicians to declare their preferences and present them clearly to the voters. This is why I hope to see a lively debate on the future of Europe before the parliamentary elections next spring ”. And what happens may happen.
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It happens that, yesterday, Klaas Knot's speech was reported in Corriere Federico Fubini, to which the Dutchman granted an interview . Fubini does not question him about his disagreement with the ECB's expansive monetary policy, not about his disagreement with a federal budget, not about the political impossibility of the Hague giving up its competitive level of corporate taxation; alone, he deigns to ask him a question about his claim that Italy reduce its public debt at a rapid pace. Fubini does not question him on the sensational assertion that all this "makes the euro unsustainable" ; he just makes him say that "the next time a crisis comes … the people in Holland would ask what happened to the help from the other time." Fubini does not question him on the equally sensational assertion that the single currency is a disadvantage for the Italian economy, he merely makes him say that "Holland is one of the major beneficiaries of the entire European market and of the euro".
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Knot's intervention was badly misrepresented even in his country, for example by Vervloed, as well as by Le Monde , who wrote of his dissent against Rutte's resistance to the Recovery Fund , as well as his support for restructuring of the Italian debt; none of which the governor has ever dreamed of claiming, as we have seen, not to mention that the governor and the prime minister are politically close. To be sure, this was inevitable as the text illustrates a huge problem without seemingly offering any solution.
This is how it appeared to the political scientist Adriaan Schout, who summarizes Knot's analysis as "the euro remains in the danger zone", the non-prognosis as "the worried story of someone who does not know how to stabilize the euro" and, on this basis, it poses the problem in terms of the alternative between the European federation and the Dutch exit from the Euro ( Nexit ). But he is wrong, because Rutte is a federalist like Margaret Thatcher, Holland is an 'agent' of German politics and the Recovery Fund is just a little more sophisticated Mes .
Indeed, Knot's intervention becomes a little clearer when compared with what he claimed before Covid , in a first interview given to the usual Fubini who, however, must have forgotten it. He had asserted that the Italian troubles had "nothing to do with the euro, Italy would have had these difficulties with whatever monetary regime it chose"; had argued that the ECB could buy Italian government bonds with the OMT program, but that this program "implies a balance", while in Italy there was an imbalance, "since there is such a high public debt and private wealth that 'it is very high ”; he went so far as to defend the possibility of a restructuring of the Italian debt, “we keep the possibility open, we are a little less apodictic in saying that a default will never happen”. Well, on all three of these topics he seems to have changed his mind, we have seen it: the Euro is today a disadvantage for Italy, today the OMT no longer mentions it, perhaps because he must have understood that the patrimonial would lead to the failure of banks, therefore it is equivalent to a restructuring of the public debt which he describes today in the very problematic terms we have seen. In short, Knot seems to have thrown in the towel and concluded that there are no tools to intervene: hence the radical stance on the Euro as a currency that is disadvantageous for some, advantageous for others.
If, in Italian eyes, this conclusion is important above all for the consequences on the disadvantaged, in Dutch eyes the opposite is naturally true. Knot's attention is directed to the advantaged, whom he wants to keep together: an understandable concern for anyone with a minimum of knowledge of Dutch politics, where Europeanism is confined to the left and the real alternative is between continuation of monetary union with Germany and Dutch exit from the Euro ( Nexit ). The debate in northern Europe is much further ahead than in Italy. Characters like Romano Prodi belong to prehistoric times.
The post The Euro damages the Italian economy, it is unsustainable. The governor of the Dutch central bank says it appeared first on Atlantico Quotidiano .
This is a machine translation from Italian language of a post published on Atlantico Quotidiano at the URL http://www.atlanticoquotidiano.it/quotidiano/leuro-danneggia-leconomia-italiana-e-insostenibile-lo-dice-il-governatore-della-banca-centrale-olandese/ on Thu, 10 Sep 2020 04:59:00 +0000.