by Sergio Cesaratto * and Lanfranco Turci
is clear to all that Greece, Ireland, and maybe Portugal (PIG) \u200b\u200bwill have to stop paying its foreign debt. The open question is not whether but when and how, above all, who are paying. As is well known by all, the Greek foreign debt is mainly composed of public debt since the beginning, the Irish is private source, due to foreign loans that have financed a housing boom, but was made public after the state guaranteed foreign debts owed by local banks, the Lusitania is mixed in its composition.
Apparently the bet made so far by European countries to decide is that the stringent fiscal measures imposed on those countries are made in exchange for financial support to generate a budget surplus while at the same time, wage deflation could lead to a resumption of exports, with imports falling due to falling levels of domestic activity, and create a trade surplus in parallel and thus the ability to redeem the debt.
The resumption of exports would moderate the fall in activity levels and therefore tax revenue. The bet is clearly missing from the application and the effects of a savage deflation of wages on competitiveness, particularly in Greece and Portugal, are uncertain and delayed in time. Therefore debt levels relative to GDP in these countries are bound to rise inexorably in the coming years (about a third in a few years). This is a consequence of falling GDP and tax revenue related, because wild austerity measures imposed on them, abnormal interest payments (including those paid by loan-sharking in Europe), the "necessity" of the public sector to absorb part of the debt the banking system.
Who are the creditors of the Pig? Basically, France, England, and especially in Germany (FIG). Keynes attributed to the joke that if you need 1 million to the bank, the problem is yours, but you need 100 million the problem is theirs. Apparently, these countries are caught between two choices, leave the Scylla of the PIG directly and save their banks in the coming fall and the Charybdis to continue subsidizing countries, thereby supporting, indirectly, their banks. The German minister of economy, the "dove" Schaulbe, has been dabbling in recent months with the first option, the idea that the German taxpayer would have paid for the imprudence of their banks, and then digest it better for a direct their banks.
The romance did not last long because it is more suitable for Germany to go for a while for the second option and this is because in order to subsidize the Pig (or banks of the IRF) through European funds created in May 2010 (and strengthened this year after 2013 under a new guise) are not only called the German taxpayer, but also of those countries like Italy get very little credit to the PIGS.
The ECB does not want to hear or speak of default now or never while values \u200b\u200bfrom the Pig has a lot in your wallet (in the form of collateral accepted in return for cash to banks) . Did not cost anything (ECB's liquidity creates a "stroke of a pen"), but considers that a loss, albeit virtual, can diminish his reputation as a strict guardian of liquidity in the fight against inflation.
The current operation can be summarized as follows. If the PIG fall now, much of its debt would remain in the hands of the banks of the FIG. But if wait a minute, in 2013-14, this debt will eventually be largely Europeanized. This is because when the titles of the PIG expire, can not be placed on the market and be purchased by European funds. Just at that moment, the FIG will have the convenience of making these countries fall, while the losses (between one third and half of the loans) will fall mainly in European funds. FIG banks will be strengthened in the meantime (also the high interest they earn by borrowing at low rates and reinvesting, for example, Italian and English titles.)
Our country participates in the rescue of European funds with a share about one fifth (little less than France while Germany gets a little more than a quarter), according to some estimates , Italy is currently the largest contributor. So Italy will pay for damages is not!
invite readers to view a chart published by the Economist which is impressive in that regard. Surge in fact to compare the claims of each European country in relation to the PIG to their participation in European funds to rescue. The chart speaks for itself. This extension of time of default is very costly to the PIG it is desirable to restructure its debt now without watch it grow inexorably despite the barbaric sacrifice their people are forced. Why Italy accepts all this?
Blackmail is a premature failure of the PIG, then the FIG banks, would result in a higher jump in interest rates for other heavily indebted countries, Spain and Italy, although far fewer problems . The release of tens of billions of euros in rescue funds, in fact the banks of the FIG, however, aggravate the public and external debt of our country. There seems therefore that Europe intends to impose to Italy, with the consent of Tremonti and Draghi, budgetary restriction measures, if implemented, would at least be devastating, but it is believed, would allow the impact of the German banking rescue. How do you react? Proposals ( here and here) are not lacking: the ECB's commitment to reduce interest rates and leaving a little inflation, wages and domestic demand in Germany, stabilization and not the reduction of public debt , a European revival of public investment in infrastructure, environment and energy, a European tax on financial transactions, the re-industrialization of southern Europe. These are questions beginning to circulate among socialist parties in Europe and the PSE. Much less in Italy. What is missing in the Italian left is not so much, or just the political strength to move on their part, but the knowledge that what is at stake is the survival of our country in this Europe.
* Full Professor of Economics at the University of Siena
Original: Melograno
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