Primerni podnaslov bi se moral glasiti: Ali Italija lahko zdrži v evroobmočju brez Maria Draghija? Kajti usoda evrskega območja je odvisna od Italije, brez Italije ni evra. In Mario Draghi je od leta 2012, najprej kot predsednik ECB in nato kot italijanski premier, skrbel predvsem za to, da je Italija lahko refinancirala svoj javni dolg po še vzdržnih obrestnih merah. Najprej neposredno prek programov odkupovanja sredstev s strani ECB, nato posredno kot garant stabilnosti za finančne trge.
Iz kovidne krize, v kateri je povišala javni dolg na skoraj 160% BDP (Italija je druga najbolj zadolžena članica EU, takoj za Grčijo), je Italija padla v energetsko in nato še politično krizo. Lahko brez Maria Draghija, z novo (verjetno) skrajno desno vlado in z dobrih 152% BDP javnega dolga Italija prevetri prihajajočo stagflacijo in finančne trge trge prepriča, da je sposobna financirati svoje obveznosti? Če tega nova vlada ne bo sposobna, se utegne zgoditi nova kriza evra zaradi povečanih špekulacij s strani finančnih trgov.
V Project Syndicate so vprašali štiri ekonomiste, ali pričakujejo novo evrsko krizo. Meni najbližji sta stališči Willema Buiterja (ex-BoE in ex-City Bank) in Megan Greene (Harvard), ki ne izključujeta nove evrske krize, medtem ko oba “Evropejca” (Daniel Gros in Paola Subacchi) precej podcenjujeta to možnost. Buiter pravi, da bi v EU morali najti nek način za “socializacijo” italijanskega dolga. Bodisi prek podaljšanja “pandemskega” centralnega financiranja EU (na letni ravni 450 milijard evrov) ali prek nadaljevanja odkupovanja obveznic fiskalno krhkih držav s strani ECB. Oboje je seveda politično precej nerealistično, zato skepsa, da se bo evro območje izognilo krizi.
Willem H. Buiter
The eurozone is heading for a sovereign-debt crisis. The list of fiscally fragile countries includes Italy (which concluded the first quarter of this year with gross government debt at 152.6% of GDP), Greece (189.3% of GDP, but longer average duration), Portugal (127%), Spain (117.7%), France (114.4%), Belgium (107.9%), and Cyprus (104.9%).
The crisis could become existential, if unsustainable sovereign debt were to trigger an exit from the eurozone – say, by Italy – thereby bringing so-called redenomination risk to fruition.Sovereign debt can become unsustainable due to poor growth prospects, higher risk-free interest rates, larger sovereign risk premia, and lack of fiscal capacity. Without Mario Draghi in charge, Italy likely cannot do “whatever it takes” to stay in the eurozone.
The risk of a government debt crises is increased further by the likely political response to the imminent European energy crisis: some combination of transfer payments, tax cuts, and energy-price controls, all of which will widen government deficits.
One way to avoid a sovereign-debt crisis in the eurozone is to socialize the fiscally weak member states’ deficits by making NextGenerationEU – the emergency funding program created to help deal with the effects of the COVID-19 pandemic – permanent. Boosting the EU’s central fiscal resources annually by around 3% of GDP – €450 billion ($445 billion) in 2022 – might do the job. But it is politically unlikely.
Alternatively, the European Central Bank could continue buying the debt of fiscally fragile member states and refrain from raising the policy rate to the level needed to achieve its inflation target. Eurozone sovereign-debt purchases in 2020 and 2021 were 120% of net sovereign-debt issuance.
But using facilities like Outright Monetary Transactions and the Transactions Protection Initiative for fiscal-rescue purposes, rather than to prevent market fragmentation and safeguard the “oneness of the monetary transmission mechanism,” would not be politically acceptable in Germany or other fiscally (self-)righteous member states. It would be challenged in national constitutional courts and in the EU Court of Justice.
Things look grim.
The eurozone is absolutely headed for another crisis, though it may not be imminent. Whether the euro project lives or dies was always going to be decided in Rome, and the upcoming Italian election – which is likely to produce a center-right coalition government led by the Brothers of Italy (FdI) – is likely to emerge. Because the FdI has its roots in Mussolini’s Fascist party, its leadership may cause investors to protest.
Yet Italy’s new government will have very little room for maneuver. Any fiscal space will have to be used to reduce energy costs and alleviate the cost-of-living crisis. The European Central Bank has been the only real buyer of Italian debt since the pandemic hit, and foreign investors have used its support to reduce their exposure to Italy. But the ECB is not going to finance policies such as a flat tax or a younger retirement age in Italy. And use of the ECB’s Transmission Protection Instrument to reduce Italian spreads would require the Italian government to adhere to EU fiscal rules. If the new government tries to flout these rules, the loss of market access would force it back into line. The alternative would be to prepare to leave the euro – something a center-right government would not want to do.
The eurozone’s weaknesses are fundamental. The European Union has changed significantly since 2010, with the creation of the European Stability Mechanism and the introduction of NextGenerationEU, which established a single resolution mechanism and entailed the issuance of joint debt. But Europe still lacks fiscal, banking, and political union. And resistance to pursuing these goals persists, as shown by northern European countries’ opposition to using NextGenerationEU as a blueprint for a scheme to finance the green transition and higher defense spending. Without these other kinds of union, another eurozone crisis will always be on the cards.
No. The appropriate adage here is, “History does not repeat itself, but it often rhymes.” A repeat of the euro crisis of 2011-12 is highly unlikely, because the fundamentals are completely different. A decade ago, the eurozone’s southern countries had large current-account deficits, meaning they needed large capital inflows; when these flows stopped, their economies tanked and the vulnerabilities in their banking systems were exposed. Today, Italy is running sizeable current-account surpluses, its net foreign-asset position has just turned positive, and its banks are much stronger.
Now onto the rhyme: during a downturn, risk premia usually increase for all but the best borrowers (those with AAA ratings) – a group that does not include Italy’s government. With a debt-to-GDP ratio of more than 150%, Italy has a BBB sovereign rating. Over the last year, the interest rate on Italian long-term government bonds has increased by about as much as that of private-sector BBB borrowers. Spain and Portugal have lower debt, and thus enjoy much lower risk premia (about half that of Italy).
But these moderate risk premia on long-term debt do not signal a crisis. The alarm bell a decade ago went off when investors demanded a substantial risk premium for short-term debt. There is no sign of this happening at present.Given this, there was no need for the new TPI, which the ECB unveiled at the end of July. (Some have suggested that TPI actually stands for “To Protect Italy,” because no other country asked for it.) At any rate, with or without the TPI, there is little risk of another eurozone crisis.
The eurozone is facing a difficult winter. Widespread uncertainty – stemming from, not least, the war in Ukraine, to which there remains no sign of resolution – implies significant downside risks.
Despite progress to alleviate supply-side constraints, Europe is heavily dependent on energy from Russia, which accounted for 40% of gas imports and 27% of oil imports in 2021. Now, Russia has decided to shut down the Nord Stream 1 gas pipeline indefinitely, and European imports of Russian oil are under embargo.
Energy-dependent industries in the eurozone are struggling with high prices and supply bottlenecks. Last month, energy prices were up 38% year on year, and annual inflation hit 9.1%, up from 8.9% in July. Consumers and governments are bracing for even more pressure on living standards during the winter months, when energy consumption will need to increase. All this is reflected in a drop in business and consumer confidence.
Overall, however, the eurozone economy is in reasonably good shape. Despite a considerable slowdown in economic activity since the beginning of 2022, real GDP is projected to grow by 2.8-2.6% this year, after having grown by 5.3% in 2021 (when the post-pandemic rebound fueled the eurozone’s strongest economic in the last 15 years). The OECD expects real GDP to increase by 1.6% in 2023, and the International Monetary Fund anticipates 1.2% growth.
The impact of the Nord Stream 1 shutdown, especially on the German and Italian manufacturing sectors, could cause this outlook to deteriorate. Another round of COVID-19 lockdowns in China – Germany’s main trading partner – could worsen matters further. And the weakness of the euro, which has sunk to near-parity with the US dollar, will make imports even more expensive. Cost-of-living increases will undermine consumer demand, though households can cushion the impact of higher prices by drawing on their savings.
At the same time, the European Central Bank is likely to tighten monetary policy only gradually, and the effect on economic growth will be broadly neutral. Companies with significant liabilities – especially those in the electricity-generating industry – may struggle to find the liquidity they need to weather the storm, but this will not trigger systemic effects.
The headwinds are surely strong. But policies to mitigate cost-of-living increases and provide a safety net to liquidity-strained companies should help minimize the risk of a winter of discontent– and a more pernicious recession – in Europe.
Vir: Project Syndicate