The 2019 MES balance sheet analyzed by Giuseppe Liturri
The Mes is trying by every means to legitimize itself as an available tool for the eurozone states in order to mitigate the effects of the Covid-19 crisis. It took 2 months to develop a new structure that would allow us to overcome all the perplexities relating to its use in a totally different situation from that for which it was conceived in the turbulent months of the 2011-2012 crisis. However, about a month after May 15, the day on which the Board of Governors approved the adoption of the Pandemic Crisis Support (PSC) credit line, no country, not even the mistreated Greece, has asked for funds and doubts about the twist to which it has been subjected to adapt it to the current crisis remains all.
The reasons that make this line of credit inexpensive , not only financially, have been illustrated several times on these columns and it is not appropriate to repeat them. These are legal and financial reasons, which form the basis for political reasons. For details, just reread the previous interventions .
The news of this week was constituted by the approval of the 2019 budget of the Mes and the surprises, despite the propaganda effort, were not lacking.
One fact is certain, the only ones that Mes is up to now are its 186 employees, handsomely paid for an average cost of around € 177,000 per year. Whose efforts to enhance the virtues of the institution in which they work do not convince at all. Starting from the questionable attempt to construct tables to demonstrate a hypothetical saving of interest obtained by the countries hitherto financed by the Mes. At the top of this table are the 14 billion savings made by Greece, compared to a hypothetical recourse to the market. Too bad that such a market does not exist and, when there is the ECB, the rates orient them and there is none for anyone. But this is only the beginning. The budget reveals a substantial immobility of the Mes in 2019:
- He has not issued new loans, nor has he received any repayments. It only issued bonds to repay expiring ones. All this at the modest cost of 72 million per year of operating costs (staff included).
- It holds around 99 billion of liquidity and financial instruments, most of which derive from the 80 billion of capital paid in by the Member States, and tries to make the best use of it on the markets. And here we are in the presence of a distortion that is incredible. Since among the various possible uses there is also that of the deposit with the central banks of Germany and France, which however apply a negative rate equal to -0.50%, the Mes, with the excuse of preserving the integrity of the capital, he gets reimbursed by those states the interest that central banks receive for these deposits. France and Germany, with a decision of their national parliaments, ordered the reimbursement to the Mes of a total of 238 million. But all this would have made sense if the budget had been at a loss. But instead the 238 million add up to a further 52 to make up the total profit of € 290 million. Incredibly, Italy thought it well to join this Mes subsidy system which, it is reiterated, only serves to beautify its budget. In fact, paragraphs 537-539 of the Budget Law 2020 provide that the Bank of Italy, when communicating the profits of 2020 to the Treasury, will highlight the share (about 77 million) referable to the Mes deposits (15 billion) held at via Nazionale . The Treasury will therefore renounce that quota and will turn the sum over to the Mes. In short, it remedies a distortion – an institution that raised capital, rather than less expensive guarantees, to be kept as a basis for the issue of bonds that it issued only minimally – with another distortion – not to make it bear the cost that any other bank would argue for a similar transaction. The absurd side of this whole story is that the 15 billion that the Mes has deposited with Bankitalia, are roughly the same amount that Italy paid in 2012 as its share of the Mes capital. In a normal world that sum, given the substantial uselessness of the Mes, should return to our country. Instead, in this juniper, those sums are deposited with Bankitalia only upon express commitment by the State to reimburse the Mes of the interests that initially corresponds to Bankitalia itself. The inefficiency of keeping capital set aside is discharged to the States which, in any case, would support it as Mes shareholders. A pure accounting device.
But Mes, in the anxiety of being noticed, also stumbled upon something that resembles a sensational own goal. In fact, the document published on the assessment of the consequences of the intervention in Greece (" lessons from financial assistance to Greece "), prepared by the former EU Commissioner Joaquin Almunia, as an "independent" evaluator (Oste! Com'è wine?), ascertained that the intervention (keeping Greece in the euro) was successful but the patient died (8 years of budget cuts produced devastating social consequences).
The report acknowledges the occurrence of " involuntary consequences " caused by " underestimation of problems " and " delay in the reception of information ". In the meantime, however, Greece has collapsed: collapse of investments, collapse of demand, crisis of public debt that has turned into crisis of banks and credit rationing, brain drain, increase in the undeclared. Wanting hastily to achieve large primary budget surpluses has only led to a further contraction of the economy. These are the same economic policy requirements (the famous reforms) that the Commission has been trying to impose on us since 2012 with mixed fortunes.
If Almunia's goal was to offer the arguments for the voluntary liquidation of the Mes, then it seems to have succeeded perfectly.
To demonstrate its usefulness, however, the Mes returns to talk about its reform. And it does so by focusing on its role as "parachute" of the common bank crisis resolution fund. If the latter had exhausted the funds necessary to rescue a bank, the Mes would make a 3-year loan of up to 68 billion to support it. Too bad that if a significant bank were to blow up, that money would be peanuts and the state would have to intervene. In other cases, there are already national procedures. As you can see, it is really difficult to find a role for the Mes.
Especially when the ECB travels at the rate of 30/35 billion weekly purchases of public securities, of which about 20% are Italian. And all its main exponents, from Christine Lagarde to Isabel Schnabel to its chief economist Philip Lane , merely reaffirm the need to continue shopping with maximum flexibility and without taking into account any of the limits previously adopted. The presence of the ECB is also measured by the results of the BTP auctions: on Thursday, 9.5 billion euro was collected on the maturities of 3, 7 and 15 years with returns of 0.46%, 1.10% and 1.91 respectively % down by about 40 basis points compared to previous auctions. These securities then bought in full hands by the ECB on the secondary market, which at these rates, promises to buy securities equal to the entire needs of the State for 2020, generate interest which then return to the Treasury through the dividends paid by Bankitalia. The same mechanism illustrated above regarding the interests of the Mes and which renders the calculations of convenience in favor of the Mes with respect to the financing of the deficit through the issue of government bonds completely meaningless. The ECB reiterated that it will not tolerate fragmentation of the financial market and therefore tensions on rates, starting from those of public debt. And it is known that no investor would ever speculate against the ECB. That's why the Mes is useless and those 15 billion must not be deposited with Bankitalia, but simply be returned to the state.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vi-racconto-segreti-e-conti-del-mes/?utm_source=rss&utm_medium=rss&utm_campaign=vi-racconto-segreti-e-conti-del-mes on Sat, 13 Jun 2020 08:15:06 +0000.