Paolo Savona su Longitude di settembre: Managing national sovereignty

di Paolo Savona - 15/10/2014 - Politica estera
Paolo Savona su Longitude di settembre: Managing national sovereignty

Over two months have passed since the ECB President Mario Draghi expressed his intention to carry out special “targeted” funding designed to boost demand, and to continue also in the purchase of private and public securities.

Perhaps this was done in the hope of a positive announcement effect, as happened after his declaration on Iuly 26, 2012, meant to prevent the collapse of certain sovereign debt that would have dragged the euro into an irreversible crisis. His statement, as well as Draghi himself, has become famous: “The ECB is ready to do whatever it takes to preserve the euro,” to which he added “believe me, it will be enough.” It has been known for at least two centuries that, if a central bank is disposed to play the role of lender of last resort without time or di- mensional constraints, speculation will be defeated.

The market trusted Draghi’s statement and speculation ceased. If the fight of private money against public money has a sure winner — since whoever has more of it (as does a central bank) prevails — the fight of public money against private economic depression has an uncertain outcome.

And it is highly unlikely to be successful if it is not conducted in a direct way, but through an intennediary, such as the banks.

The new announcement effect that Draghi expected did not come true; rising stock prices along with low spreads and in- terest rates in the stock exchange show that financial assets will benefit from the main effects of the new injection of monetary base rather than real growth, which will benefit only from a modest boost to con- sumption. During the press conference held on September 4, Draghi recognized that in 2015-2016 real growth and inflation will remain well below the levels needed to allow for a reduction of unemployment.

The downward trend of credit confirms it. Two conditions that Draghi specified oper- ate in this negative direction:

1) funding will be given to countries making reforms, especially with regard to goods and labor markets and public finance, including the implementation of the so called "fiscal compact”;

2) the building industry is excluded for fear of new speculative bubbles............. - - -