Coronavirus, so Frankfurt helps Italy and now decides without unanimity

This too will greatly help the liquidity of small businesses increasingly difficult in this phase of economic paralysis. Finally, another historical turning point: the ECB declares itself ready to throw the maximum limits in the purchase of securities that it has always been self-imposed up to now. Starting tomorrow, it will also be able to hold more than 33% of each issue and expand operations much more. was the inevitable response to the mistakes made by the bank’s board of directors on Thursday, with a decision that was clearly clearly insufficient at the time. Besides, the ECB no longer had a choice. The error of President Christine Lagarde, who had given the impression of discarding the role of guaranteeing the financial stability of governments in liquidity crises, could not be remedied only with reassuring statements. The new French president of the ECB had to field money, a lot of money, to demonstrate that her “gaffe” would not have followed. Certainly Fabio Panetta, the Italian who sits in the executive of the ECB in Frankfurt, and the governor of the Bank of Italy Ignazio Visco supported her fundamentally during the night. Lagarde wanted to keep everyone on board last Thursday: the Governing Council had decided unanimously, with the support of Bundesbank President Jens Weidmann and his allies, but the result had been an insufficient package of measures. The upheaval of the government bond market, with Italy at the center of the storm, had been the only result.

This time Lagarde leads the Council to a majority decision – some of the stiffer central bankers have not voted in favor – but it gets the decision it needed. Not a moment too early. Without the support of the ECB in this disaster, it was already clear that the prospect of having to seek help from the ESM bailout fund was becoming increasingly concrete for Italy: the European Stability Mechanism created for the bailouts of the governments in crisis that in these days, mandated by the euro government, is already dusting off some of its “precautionary” credit lines for governments in liquidity crises. Now the Commission that is about to declare that the rules are suspended (the “general escape clause”), the idea of ​​offering all the countries affected by the epidemic a “credit line on enhanced terms”. Of course, only a few would have been forced to accept the offer because, in a deep recession, they risk not being able to collect the funds to pay wages, health or pensions anymore. The exposed governments are always Italy, Greece, Spain, Portugal. Potentially – less likely – France too. So, before the ECB’s decision on Wednesday night, only access to that credit line would have opened the doors also to activate the central bank’s “shield” in the form of Outright Monetary Transactions (Omt), unlimited interventions on individuals Countries designed by Mario Draghi in 2012.

That path would have been almost obligatory for Italy without the Lagarde turn. The problem of imposing difficult reforms decided by others and suffocating vigilance, following the model of the Troika, on governments affected by the epidemic would have been politically unacceptable. In this regard, Pedro Sanchez, the Spanish premier, had insisted that the conditions of the ESM be minimal: just that the funds are used to deal with the emergency, nothing else. But the devil always in the details. Those EMS programs are subject to a prior “debt sustainability analysis” and many governments in Northern Europe could have given a loan to Italy only if the government accepted a form of piloted preliminary default. Such obstructionism, writes former IMF chief economist Olivier Blanchard, would be “criminal”.