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Monday 10 May 2021

Good people Coronabond, Europe, Germany: end of an illusion?

Coronabond, Europe, Germany: end of an illusion?

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The Italian proposal to issue EU-guaranteed debt securities to cope with the economic difficulties of the European countries affected by the virus (mainly Italy, Spain, France) has suffered the hostility of the northern European countries that have joined Germany in the block, at least for now, the initiative in this regard: everything else, including the possible alternative use of the European Stability Mechanism (ESM) are smoke screens to cover up the harsh reality of an EU in deep crisis.

First of all, it is to be clarified that the ESM has a fund of € 750 billion, of which 106 have already been used to grant loans to some countries (Portugal, Cyprus, Spain): even if all the remaining capacities were used, the loans to be granted would be however insufficient to meet the needs of all countries affected by the pandemic.

It should be remembered (and this is the most controversial point) that at the time of the loan, the ESM can impose on the debtor state the adoption of drastic financial measures, including the "restructuring" of its public debt, which means in practice decreasing the amount due to savers at the time of the repayment of the government bonds in their possession: it would almost certainly result in the bankruptcy of the banks of that country holding a large part of the bonds themselves.

The modification of the treaty which should have rigor since 2022 and which Italy has hitherto opposed, without much success, which makes the adoption of that measure even more pressing is under discussion. It is therefore easy to understand the Italian resistance to ask for a loan from the salvastati fund to overcome the economic difficulties of the pandemic, even if at the time when the agreement establishing the fund (Monti government) was ratified by Parliament in the belief that it would be a useful tool to access a loan from the fund itself that would allow Italy to get out of the financial difficulties in which it was at the time. The mistake was to believe that a possible loan from the ESM would take place on conditions not too penalizing for our country, leaving aside the consideration that it is the second largest manufacturing country in Europe, behind Germany, and that for this reason Germany would have made more of a showdown than showing off a generous friendship. It should be remembered, among other things, that the German government signed the treaty only after the Constitutional Court had given the go-ahead to that signature, however clarifying that Germany's commitment could not exceed 190 billion euros without specific authorization from parliament German: Germany thus ostentatiously showed its willingness not to grant financial space to European countries that were in difficulty, evidently seeing in fact a valid circumstance to guarantee the German primacy of the European Union.

Believing that in this situation Italy can even hypothesize the use of a loan from the fund to exit the crisis is a mere illusion, both for the consequences that would derive from it, and in that the sum deemed necessary by the European countries to exit the crisis it exceeds 500 billion, leaving the fund, before a possible request for loans, very little room for maneuver remaining, in substantial contrast with the purposes of rapid and temporary intervention as well as limited for which it was established.

This explains the Italian initiative in favor of credit securities for a total of 500 billion euros guaranteed by the EU and usable by the countries affected by the virus to overcome the difficulties deriving from the pandemic. The President of the Republic Mattarella, in the message to the Italians of March 27, clearly stated that to reject this solution or similar solutions means to condition very heavily the permanence in life of a European Union for the ascertained absence of an authentic solidarity between the countries that make it starts in this emergency.

Germany and the northern European countries that follow the path of refusing a European involvement in the guarantee of the securities to be issued follow a very dangerous path: they are really sure that their choices are the right ones and that the eventual dissolution of the European Union will play to their advantage?

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