Still divisions on the ESM and alchemy, but no one focuses attention on the country’s progress – VP News – ‘forbidden to talk’

2023-06-23 22:59:37

The ESM, the European Stability Mechanism, is causing a heated debate in Italy. On the one hand, the Ministry of the Economy promotes its ratification arguing that it would not produce “new or greater burdens” and could even lead to an improvement in Italy’s rating. On the other hand, the political parties are divided: the League opposes ratification, while Forza Italia has not guaranteed the necessary votes (Source Ansa).

The League’s argument concerns the cost of MES activation. However, according to an article on StartMag, even the MEF technicians admit that the cost of the loan through the ESM is an inextricable unknown, since it depends on many variable factors. As a result, the article states, “it’s quicker to roll the dice.”

Furthermore, according to the same article, the letter from the MEF in support of the ESM would be a real boomerang. In fact, the MEF technicians have ventured “on the slippery slope of conjecture”, citing the fact that “it is possible that the reform of the ESM will lead to a better assessment of the creditworthiness of the member states, with a more pronounced effect for those with higher debt like Italy”. However, the author of the article maintains, Minister Tremonti did not ask for the opinion of analysts and market operators, but of the MEF technicians regarding the public finance rules. And MEF technicians are forced to admit that the cost of MES activation is unknown.

So who would benefit from the ESM? According to the article in StartMag, member states that are shareholders of the ESM would have a better “return on paid-up capital”. Therefore, the author argues, it is a tool that is convenient for creditors and not for debtors like Italy:

[…] How much do Mes loans cost? We don’t know. It depends on how much the Mes pays to finance itself on the markets and on how it moves in funding (short or medium/long term), then on the top-up it will take to cover operating costs and “an adequate margin” (you don’t want them to work for free!) , the instrument chosen by the Member State to finance itself (the precautionary line or the one with enhanced conditions). In short, it’s quicker to roll the dice. Then we need to make a comparison with the cost of debt before accessing the loan, because obviously the Mes would have a positive impact only if the financing costs on the markets had skyrocketed, like Greece. Can anyone venture to make such calculations for Italy? Nobody. In fact, the Mef technicians throw the stone, but then hide their hand. And since when has the Italian Republic been forced to ask for loans with a cost to be determined?

In the end, do you know who would benefit? The member states that are shareholders of the Mes (Italy too obviously, but it’s a round game) which, thanks to the rates that the debtor country would pay, would receive a better “remuneration on paid-in capital”. Confirmation that it is an instrument that is convenient for creditors and not for debtors. (Source: Startmag (