Great article, but from a German perspective this transfer of credit is highly unpopular and considered unconstitutional by the German Federal Constitutional Court; one of the main reasons why it upheld the PSPP in 2020 was the capital key to prevent an open financing of member states by the ECB, which is prohibited under the EU Treaties.
I find it amusing that anybody thought the tpI would be anything other a dressed up way for the ECB to buy BTP's and sell Bunds to close the spread. In fact, the whole point of the sterilization is to have a mechanism to sell Bunds.
I am not so optimistic that the Europeans will reach any true agreement to either federalize or mutualize their sovereign debt until such time as the euro is on the cusp of disintegration. I fear the bigger problem is that it won't be the weaker countries that will be looking to leave, but the Germans as they will get tired of funding the rest of the continent. this will be especially true if Russian natural gas stops flowing and Germany falls into a deep recession.
the euro has a very steep wall of worry to climb in my view, at least until the Fed blinks and all the hawkishness leaves there. At that point, the only certainty seems that market volatility across asset classes will rise dramatically.
thanks for your analysis, which is always clear and on point
Greece has other problems, but IS known for political stability. No comparison with Italy. 2012-2015 was tormentous due to terrible (by any historical standards) austerity, but these period is certainly not the rule.
I do not think that the generally higher unemployment rate in Southern Europe would be a cyclical difference or a monetary thing. This is quite persistant and relating to some cultural or structural thing.
One thing that irks me about the euro is that it only really gets a pass from economists and moderate centrists politicos for two reasons:
A) Unraveling the monetary edifice would probably be pretty painful
B) It's large component of the dream of European integration, a dream shared by most highly educated types on both sides of the Atlantic
The actual benefits from monetary integration have been tiny and in all likelihood more than matched by the downsides. But that's fine, because we are all cosmopolitans and having the euro makes further integration easier.
It's good that the economic integration that can finally make the euro broadly beneficial is picking up some steam, but it's still a bet and probably a pretty risky one. Integration is not a one-way street, as the UK shows. Germany, the most important member of the euro, remains angsty about giving Greece and Italy access to the punchbowl. More political pressures could easily unravel an architecture that, in the best case scenario, will still need decades to approach anything like what actual nation states take for granted (ie fiscal union). That's years and years of poor prospects for millions of people, possibly wasted. I've been to Athens, it's a very sad image.
In other words, the euro is the anti-nuclear power stance equivalent for macroeconomics. A bad idea with a bunch of powerful friends.
EDIT: amusingly, Angela Merkel gets a pass for being awful at both those things! I do wonder if being a neoliberal hero simply boils down to frowning a lot and wearing suits / pantsuits sometimes.
Thanks Mr. Politano for a a comprehensive article! I understand this new tool could help to reduce spreads, I am however very concerned that on balance it will still mean monetary expansion. Is there a way to measure if money supply is more reduced by the 0,5% rate hike or increased by the new tool?
Context is that for none home owners there has been a financial crisis already for years. If homes appreciate by 40K EUR per year (as in my home country) there is no way to get on the property ladder. Young people have been getting depressed, not able to start families because housing is unaffordable. Honestly I see aggressive monetary contraction as the only solution and have been for years awaiting the day when there is finally an economic crisis, the sooner the better.
How did you get to the conclusion that the rate was too high for Italy and not too low for Germany? A negative rate of 0,5% by EZB, how could it get lower then that. This was way too low for Germany and could not be lower then this historic lows for Italy. Acording to the charts Italy has never in its history owed more money the now and is relativ to other Euro members in a quite bad position. You paint a picture of fiscal restraint and surplus?
Great article, but from a German perspective this transfer of credit is highly unpopular and considered unconstitutional by the German Federal Constitutional Court; one of the main reasons why it upheld the PSPP in 2020 was the capital key to prevent an open financing of member states by the ECB, which is prohibited under the EU Treaties.
I find it amusing that anybody thought the tpI would be anything other a dressed up way for the ECB to buy BTP's and sell Bunds to close the spread. In fact, the whole point of the sterilization is to have a mechanism to sell Bunds.
I am not so optimistic that the Europeans will reach any true agreement to either federalize or mutualize their sovereign debt until such time as the euro is on the cusp of disintegration. I fear the bigger problem is that it won't be the weaker countries that will be looking to leave, but the Germans as they will get tired of funding the rest of the continent. this will be especially true if Russian natural gas stops flowing and Germany falls into a deep recession.
the euro has a very steep wall of worry to climb in my view, at least until the Fed blinks and all the hawkishness leaves there. At that point, the only certainty seems that market volatility across asset classes will rise dramatically.
thanks for your analysis, which is always clear and on point
So, how in practical terns will this end the Italian bond crisis. You said basically there is no such thing as a free lunch listing some conditions.
Greece has other problems, but IS known for political stability. No comparison with Italy. 2012-2015 was tormentous due to terrible (by any historical standards) austerity, but these period is certainly not the rule.
I do not agree that "USA is great" thanks to Fed and QE policies. In fact, USA is worse due to "socialism for the rich" policies and government interventions. https://glibe.substack.com/p/dollarzone-and-eurozone-failures
Some solutions for the Eurozone area are
- Monetary dividend / helicopter money during financial crises periods
- Basic income or annual dividend instead of QE and easy credits
- More fiscal federalism, regarding EU- and national levels decision-making
- Openness to cryptocurrencies and decentralisation
I do not think that the generally higher unemployment rate in Southern Europe would be a cyclical difference or a monetary thing. This is quite persistant and relating to some cultural or structural thing.
One thing that irks me about the euro is that it only really gets a pass from economists and moderate centrists politicos for two reasons:
A) Unraveling the monetary edifice would probably be pretty painful
B) It's large component of the dream of European integration, a dream shared by most highly educated types on both sides of the Atlantic
The actual benefits from monetary integration have been tiny and in all likelihood more than matched by the downsides. But that's fine, because we are all cosmopolitans and having the euro makes further integration easier.
It's good that the economic integration that can finally make the euro broadly beneficial is picking up some steam, but it's still a bet and probably a pretty risky one. Integration is not a one-way street, as the UK shows. Germany, the most important member of the euro, remains angsty about giving Greece and Italy access to the punchbowl. More political pressures could easily unravel an architecture that, in the best case scenario, will still need decades to approach anything like what actual nation states take for granted (ie fiscal union). That's years and years of poor prospects for millions of people, possibly wasted. I've been to Athens, it's a very sad image.
In other words, the euro is the anti-nuclear power stance equivalent for macroeconomics. A bad idea with a bunch of powerful friends.
EDIT: amusingly, Angela Merkel gets a pass for being awful at both those things! I do wonder if being a neoliberal hero simply boils down to frowning a lot and wearing suits / pantsuits sometimes.
Sorry for that; rant over.
Good post as always, Joey.
Thanks Mr. Politano for a a comprehensive article! I understand this new tool could help to reduce spreads, I am however very concerned that on balance it will still mean monetary expansion. Is there a way to measure if money supply is more reduced by the 0,5% rate hike or increased by the new tool?
Context is that for none home owners there has been a financial crisis already for years. If homes appreciate by 40K EUR per year (as in my home country) there is no way to get on the property ladder. Young people have been getting depressed, not able to start families because housing is unaffordable. Honestly I see aggressive monetary contraction as the only solution and have been for years awaiting the day when there is finally an economic crisis, the sooner the better.
How would the TPI impact me and others like me?
This was a great article. Thanks for sharing.
How did you get to the conclusion that the rate was too high for Italy and not too low for Germany? A negative rate of 0,5% by EZB, how could it get lower then that. This was way too low for Germany and could not be lower then this historic lows for Italy. Acording to the charts Italy has never in its history owed more money the now and is relativ to other Euro members in a quite bad position. You paint a picture of fiscal restraint and surplus?