The European edifice, called the EU since its inception to date and with the EU’s current colossal euro zone, has relied on solidarity between its member countries creating the conditions for the ‘brotherhood’ of European peoples participating in it with the ultimate future objective of creating at some point the ‘European Nation’ consisting of all the peoples of the EU.
Unfortunately last week part of the European institutions, namely ECB President Christine Lagarde and the EU’s top political leadership, presiding over German Chancellor Angela Merkel, demonstrated that when and whenever they are given the possibility, they give “backstabbing” to other euro area (EU) member countries that are layered in the “boxing ropes” by the peculiar conditions faced, for example, Italy and Greece respectively (for the “Backstabbing” of EU and Germany equally against tested Greece please read the analysis titled “The EU and Germany “Backstabbing” in Tested Greece”).
by Thanos S. Chonthrogiannis
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Photo by the website www.ilsussidiario.net
ECB President’s ‘backstabbing’ in tested Italy
In the midst of the titanic struggle waged by the Italian state apparatus, namely the Italian Public Health System to protect the proud Italian people from the deadly coronavirus pandemic that has created hundreds of dead in Italy and has sown terror in all EU member countries and the planet in general, and having first and foremost EU accepted the accusations by US President Donald Trump that for the spread of this virus in Europe is responsible for the EU’s incompetence resulting in the disruption of air transport from the EU to the US thereby creating strong turbulence on European stock markets and spreads of Eurozone governmental bonds equally -particularly Italy’s counterparts- ECB President Christine Lagarde was unpleasantly surprised if not infuriated by her statements of the entire Italian people.
On March 12th, Christine Lagarde President of the ECB managed to give the gift shot (ouster) to the terror-scare of coronavirus Italy, plunging Italian stock markets and further burst the spreads of Italian Government Bonds. Whether it was with cause or not, this attitude of the President of the ECB is something that will be proven in the future.
On this date in an interview, ECB President Christine Lagarde in a reporter’s question whether the ECB intends to use the “Putright Monetary Transactions” program to directly buy government bonds of a Eurozone member country facing significant difficulties in order to drastically reduce the size of its government bond spread, she replied that its predecessor’s strategy Super Mario (Mario Draghi) will not be repeated again.
In other words, the ECB will not use the permitted flexibility laid down in its statutes as it is not the ECB’s job to stabilise spreads on the government bonds of euro area member countries. Its statements triggered the biggest annual fall on the Milan stock exchange (-17%), while the spread in Italian government bonds reached 270 b.p.
In fact, the ECB President’s concrete statements were cancelled in the eyes of investors the EU Commission’s announced support measures for Italy’s economy. As another “Brutus”, Christine Lagarde stabbed the knife in the “body” of the much-tired Italian economy.
Then, in a subsequent interview with US channel CNBC, the ECB President insisted on her initial statements without correcting anything and saying that “the only flexibility that can be applied in the Eurozone is that allowed by the rules regarding the government bond purchase program.”
Of course, the ECB in the coming days and through its official website and the statements of its Chief Economist Philip R. Lane tried to mitigate the upheaval caused by the ECB President’s statements by clarifying that “the ECB can focus on buying government bonds in a particular member country in order to stabilise markets and spreads” by continuing, including that “it is not excluded that interest rates will be cut and the ECB’s deflationary obsession mitigated.”
Photo by Office of Presidency of the Italian Republic
Following an extraordinary conference call at midnight on Wednesday, March 18, the ECB announced an emergency bond purchase program due to the new coronavirus (Covid-19) pandemic totaling € 750bn. This new bond purchase program is called Pandemic Emergency Purchase Program – PEPP.
Bond purchases will take place by the end of 2020 and will include all asset classes that are eligible under the existing purchase plan (AAP).
The questions that need answers
But the unanswered questions raised by ECB President Christine Lagarde’s statements need answers. More specifically:
1. Were the ECB President’s statements random or not while the Italian economy was in a “coma”?
2. If Christine Lagarde’s specific statements were not random, why did these happen when the issue was the expansion of the spread of the Italian government bonds and whether the Italian economy would be helped by ECB policies?
Maybe because she wanted to cancel out her predecessor’s (Mario Draghi) quantitative easing policy in the eyes of all global potential investors and leaders of the EU member countries?
3. What was the goal of these statements?Is the ECB preparing the ground for a shift in a monetary policy that follows the IMF doctrine?
4. If so, why is this IMF monetary policy more advantageous for the Eurozone when the common applied fiscal policy in the Eurozone is deafeningly absent? Is it about the entire Eurozone leadership to face no-exit events?
5. Does the ultimate goal is for the competitiveness of the Italian economy to remain immersed with its “head” in the water and when it needs help to recover (by pulling its head out of the water) to be pushed back into the ‘water’ on the benefit of the competitiveness of other euro area member economies that in difficult times like today desperately need to increase their exports to avoid entering a deep recession;
6. Or the goal of these statements is for diamond-companies in the Italian economy to enter in a long-term low valuation phase due to low competitiveness, and low revenue-high spending status creating the conditions for cheap acquisition by other European companies?
7. Or the aim was to give Italy the message that the ‘informal’ hostage-taking of its economy (through non-assistance from the ECB) would be stopped if and when the Italian Government stops looking at investments from foreign countries (e.g. China) by always following the Brussels suggestions?
Russia’s ally China a few months ago signed a very generous economic treaty-cooperation with Italy, but also with other EU member countries such as France, while regulating China’s trade relations in the Mediterranean Sea and with Italy standing next to China, even if the EU was opposed to this choice of the Italian government.
Surely all these unanswered questions so far will have to be answered in the future.
