BTP Italia or patriotic-autarkic BTP in general: Giorgia Meloni’s plan, aimed at courting Italian retail investors to hold a greater quantity of made in Italy government bonds, remains in the spotlight pending the next issue of the BTP Italy, announced in recent days by the Treasury.
According to what was communicated by the Mef (Ministry of Economy and Finance), the new issue of the BTP Italia, the government bond indexed to the national inflation rate designed for individual savers, will be held from Monday 6 to Thursday 9 March 2023.
As is usually the case, the BTP Italia will arrive on the market in two phases:
“The first phase will take place from Monday 6 to Wednesday 8 March, unless closed early, and will be reserved exclusively for individual and similar savers (the so-called retail market) where all requests received will be satisfied; the second phase will take place in the morning of March 9 and will be reserved only for institutional investors”.
Treasury: new anti-inflation BTP Italia. The Loyalty Reward
The issue will be an important test that will test the participation of small investors in public debt: exactly what was hoped for by Giorgia Meloni, who unequivocally expressed the desire to increase the share of BTP & Co in the hands of the Italians.
A greater participation of savers in the debt is considered essential, at a time when the ECB is preparing to launch (again in March) the QT-Quantitative Tighteningthe antithesis of that QE-Quantitative easing bazooka that was launched by the ECB, at the time when Mario Draghi was president: a real monetary bazooka, lifeblood in all these years for Italian BTPs (and for all Eurozone sovereign bonds).
Thanks to the QE bazooka, the ECB was the main net buyer of the new government bonds that Rome has issued to refinance its public debt and to finance expenses.
Now the Eurotower is preparing not only to withdraw the crutch that held up Italy’s public finances but also to reduce the quantity of BTPs and other government bonds of the euro area which have caused its balance sheet to balloon. And the ECB has bought quite a lot of BTPs so far.
So he wrote at the end of October Robin Brooks, ex Goldman Sachs and Chief Economist of the International Institute of Finance (IIF) @IIF:
“Italy’s net issuance of new debt was financed almost entirely by the ECB in six of the seven years between 2015 and 2021”.
Brooks defined in the tweet Rome’s dependence on Frankfurt, practically, “permanente”.
With the plan autarkic-sovereign-patriotic BTP Giorgia Meloni & Co wish to channel the interest of retail investors towards the new government bonds that will be issued by the Treasury: which will not be few, far from it, given the need to finance all the aid that has been disbursed to shield families and businesses from the expensive energy unleashed from various factors, reopening of the post-Covid economy and war in Ukraine in the first place.
For 2023 an avalanche of emissions is expected: a problem that certainly does not concern Italy alone, given that all the governments of the euro area, for better or worse, have stood up as citizens’ champions against high bills and the scourge of inflation:
their interventions they were so timely and massive that Christine Lagarde herself, head of the European Central Bank, has issued more than one warning on the risk that these fiscal stimuli end up further fueling inflation, thus forcing the ECB to be even more aggressive on rates.
Governments, Schroders: regime change, fiscal activism returns
But what seems to interest governments now is to take the place of the ECBusing what Schroeders analysts have called a regime change, coupled with the return of tax activism.
An activism closely related to populism:
“We believe that central banks will be able to dampen the current high levels of inflation over the next 12-18 months. We do not, however, anticipate a return to the period after the great financial crisis (Global Financial Crisis (GFC -) when the monetary authorities struggled to generate enough inflation to meet their targets. That period, often branded as ‘low inflation’ will, in our opinion, be followed by a phase in which inflation will be higher and more volatile. The obstacles that had weighed on prices (preventing them from rising) are in fact diminishing and the economy is entering a new regime, characterized by supply-side bottlenecks and more frequent price increases”.
This change will force central banks to focus on the battle against inflationand no longer being able to assist the growth of GDP (and the leap in the markets), as happened in past years, with their monstrous injections of liquidity focused on zero if not negative rates and on various QE-style bazookas which, in the case of Italy, they have been a real anti-spread shield saves BTP.
Accordingly, the result according to Schroders will be the emergence of ever more generous governmentswho will take action to churn out pro-growth research, launching progressively more generous fiscal stimuli, in spite of public debts.
“The result – underline from Schroders – is that the balance between monetary policy and fiscal policy will change. The ultra-accommodative monetary policies of the aftermath of the Great Financial Crisis, where low interest rates accompanied fiscal austerity, will be replaced by a new mix of tighter monetary policies and more expansionary fiscal policies.
In short, he will be the protagonist again “fiscal activism”.
In the case of Italy, the statements of the Prime Minister Giorgia Meloni have already decreed in a practically official way the era of which the Schroders experts speak, launching the call to arms to the Italians.
BTP Italia and autarkic BTP: the relationship between Italians and public debt
This issue has also been addressed in a Reuters article, which takes up both Meloni’s statements and the Treasury’s announcement on the BTP Italia, which will return to the markets at the beginning of March.
“The treasure – remarks Reuters – he also said he was considering other tools dedicated to savers, as part of a strategy that aims to have a greater share of (Italy’s) enormous public debt – proportionally the second highest in the euro area – in the hands of the Italians”.
It is recalled that, according to Bank of Italy data, at the end of 2022 small Italian savers held about 9% of the Italian public debt.
The analysts interviewed by Reuters commented on the issue which had already been defined at the end of 2022 as Autarkic or even sovereign BTP.
In their opinion, the intention of the Italian government would be to take advantage of the currently favorable market conditions in a context in which there are three BTP Italia nearing maturity.
I three BTP Italy to be precise, they will expire in April, May and November, for a total of almost 25 billion euros.
Scrive Reuters:
“The importance of (government debt) purchases by retail investors is set to grow at a time when the ECB is withdrawing its support”.
Among other things, the BTP Italia arrives at a time when inflation is eroding the value of Italian savings, which are certainly not few:
“According to ECB data, the savings of Italian families parked in the bank are higher than the savings of other euro area countries”totaling “to 86% of GDP, compared to 74% in France and 81% in Germany and Spain”.
Alvise Lennkh-Yunus of Scope Ratings himself admitted that “the liquidity of Italian households it offers the Treasury the potential to see its investor base grow (in BTP and public debt) in the short term“.
And the Italians may want to decide for their part to hurry to save their purchasing power from the threat of inflation, which has already done damage, given that, during 2022, for the first time since 2017, the value of deposits fell.
According to Fabi herself, the Italian banking union, the high cost of living has eroded the current accounts of Italian families to such an extent that the balance – for the first time since 2017 – dropped by almost 20 billion in 2022.
“The survival of savings in today’s time is no longer a guarantee and this is demonstrated by the data on the pockets of Italians, lightened by the waves of the continuous flare-ups in energy prices and by a generalized inflation that is increasingly on the rise”, warned the union.
Furthermore, in January, if the growth of inflation in the euro area measured by the consumer price index slowed down to a rate of 9.5%, in Italy the slowdown was less evident than in other countries, with the ‘hypca harmonized consumer price index which it stood at 10.9% last month.
Not only: “The real value of the deposits of Italian savers has undergone a much greater decline than those of Spain”.
And so? Positioning on the BTP Italia could be the best solution to save Italy from the abyss of public debt and, at the same time, save Italians from inflation?
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Meloni government and the Japanese syndrome: beware of the risks
Ferruccio de Bortoli addressed the question of the BTP Italia which will hit the markets at the beginning of March and of the autarkic or even sovereign BTP in general, with an article published in the insert The Economy of The Corriere della Sera:
“More BTPs for Italians? The Japanese Syndrome”.
de Bortoli issued a first warning on the inflation-linked BTP:
“Attention, starting from the price index. If this decreases or remains unchanged, the BTP Italia does not protect against inflation. It behaves like a traditional BTP. Pay the expected nominal interest and any final premium”.
Also, by referencing “to the Italianization Meloni talks about” with probables “fiscal incentives”, de Bortoli issued a second warning:
“Promising more could be, apparently, a good idea, but it would give the market a distorted signal, a substantially negative message and a de facto increase in the risk premium. In addition, according to European legislation, it is not possible to distinguish between residents and non-residents. Be careful not to wave the flag too much, and unnecessarily. The investor is stateless”.
And the markets have already shown that they don’t love sovereign theses too much.