“With inflation slowing, the ECB will have to change course”. Talking is Massimo Doris, number one of Banca Mediolanum, in an interview published today in the newspaper Il Messaggero.
In addition to pointing out “the second best year ever” for Banca Mediolanum, thanks to a “crisis-proof business model”, the banker tackled the interest rate issue: to be precise, the issue relating to roundup of rate hikes that the ECB by Christine Lagarde has launched in its fight to stifle inflation.
A fight destined to go on since, with his Christmas greeting video messageLagarde confirmed all her determination to carry on with her credit crunch, after the controversy in Italy, in particular, had exploded against her monetary tightening which, according to some politicians but also economists, would risk destroying the fundamentals of the euro area economy.
For some, the tightening would be wrong, given that – so it is repeated – the inflation in the Eurozone would not have been caused by the solidity of demand, therefore by the overheating of growth, but by the scarcity of supply.
CEO of Banca Mediolanum, Massimo Doris adds his comment on the ECB by Christine Lagarde to the numerous opinions that are following one another on whether or not the Eurotower should continue to raise rates.
ECB and rates, Massimo Doris:
What does the banker think of the risk that an overly hawkish ECB will end up unleashing? a recession in the Eurozone?
To the direct question: “Is only the credit crunch really the ideal cure against the rush of inflation?”the CEO of Banca Mediolanum replied as follows:
“For sure is the most delicate topic of 2023. This explains the very lively debate among economists, between those who fear ending up in the grip of a recession in the event of too aggressive increases and those who fear the effects of inflation that is hard to die for”.
That said, Doris noted, “the latest signals recorded in Europe suggest that the ECB may ease the tightening sooner than expected”.
The CEO of Banca Mediolanum therefore believes it is possible an about-face by Lagarde & Co. in the wake of a slowdown in inflation, in the wake of the “collapse of oil and gas prices”; besides, remember, “energy costs were the main triggers of the price hike”.
So, “now that they have returned close to pre-crisis levels, inflation will also come back faster than expected. And the ECB will not be able to ignore it. We cannot risk an abrupt stop to the economy which would inflame unemployment“.
Doris also mentioned that “the rate hike is an opportunity for the accounts” of the banks but, also, that “NPL (non-performing loans) grain, in the event of a recession, cannot be underestimated”.
The ECB continues to be the subject of debate in Italy, afterwards the ‘case’ Guido CrosettoMinister of Defense, who he wasted no time attacking Lagarde following the latest rate hike in the euro area in 2022, announced last December 15th.
That last act of 2022 by the European Central Bank, combined with the fear of a Meloni government on a collision course with Europe, led the yields of ten-year BTPs to settle at a higher value than those of Greek bonds.
On 15 December, the Eurotower raised interest rates on the main refinancing operations, the marginal lending facility and the deposit facility respectively al 2,50%, al 2,75% e al 2,00%, with effect from 21 December 2022.
Not only that: in addition to announcing the rise in the three main reference rates of the euro area, the European Central Bank has expressed its intention to start reducing your budget, inflated with QE-Quantitative easing, in technical terms APP (PPA in Italian), launching the much feared Quantitative Tightening (QT).
The double announcement has rekindled concerns about the sustainability of the Italian debtin a context in which the ECB is preparing to withdraw the hand that had saved Italy, in conjunction, among other things, with the arrival of a wave of government bond issues that not only Italy by Giorgia Meloni but also Germany and other euro area countries will have to launch, to finance the extraordinary measures launched against high energy prices.
A few days ago a criticism in Frankfurt was also leveled by Flavio Cattaneo, entrepreneur already number one of Telecom, Terna, Rai, currently at the helm of Italo.
In an interview with Il Messaggero, Cattaneo warned that “a further tightening by the ECB on rates will almost certainly lead us to a recession”. Adding: “For families and businesses it would be a fatal blowconsidering the weight of the bills and a skyrocketing cost of living”.
It was also the same who launched a warning against the ECB in recent days number one of ABI, the Italian banking association, Antonio Patuelli.
In an interview with Il Sole 24 Ore, Patuelli urged Lagarde to caution, before opting for yet another rate hike at the beginning of the year (the Governing Council of the Eurotower will meet to decide on rates on 2 February).
“In my opinion you should think again before deciding: with the drop in the price of gas, the most decisive factor of inflation will contract and therefore it will be necessary to be more cautious in raising rates”.
“If the moratoriums are not authorized – -explained the number one of the ABI – in 2023 NPLs will grow again. If the European institutions, as they have always stated, do not want the level of NPLs to increase, they will have to authorize again, in the Temporary Framework, installment payment suspensions, which cannot be decided independently by the Italian State. At the same time, it must be possible to temporarily suspend the reclassifications of loans to problematic loans, made mandatory in these cases by the EBA regulations”.
Opposite Stefano Micossi’s view, economist trained at the Bank of Italy and who recently left the management of Assonime, a position he held for 23 years.
“I don’t think that at the moment the ECB’s action can be softened – he said, when asked by the Formiche.net website – “So far we have only had a small brake on the cost of living, the idea that what has been done is enough is wrong. Let’s remember that again today real interest rates are lower than inflation itself. We must have no illusions, if the Central Bank were to stop its restrictive policy today, it could mean bigger problems in the future. In all honesty, I find it hard to share this great chorus against Frankfurt.”
“Look, inflation is an ugly beast – continued Micossi – We need to consolidate the credibility of the ECB, deeply weakened by its own behavior last year. However, there is only one truth: the economy is better than it seems, the climate in Europe is not bad, the markets are calm and they are expecting a mini-recession. No, the European economy is not weak at all. The medicine of the ECB is bitter but necessary, but if the ECB were undecided about the continuation of this action, we would pay dearly for it later”.
And meanwhile in the article Is the ECB wrong or not wrong? When in doubt, how much we miss the Draghi governorGiancarlo Mazzuca, in recalling that “Patuelli and Crosetto attack”, while the senator for life Mario Monti “defends”hopes for the return sooner or later of the former president of the ECB and former president of the Council, Mr. Whatever It Takes, Mario Draghi:
“Just to avoid further discussions on Lagarde’s next moves, wouldn’t it be appropriate to hope, when possible, for a return to Frankfurt of an unemployed luxury like Super Mario? Even if there were controversies even when Draghi was there (just think of the criticisms raised against him by German Chancellor Angela Merkel), with him at the ECB we could really feel like we were in an iron barrel”.
What would Mario Draghi have done in this situation?
This is how Defense Minister Guido Crosetto increased the dose against Lagarde and her monetary squeezes at the beginning of the year, interviewed by the newspaper la Repubblica: “The country’s economic conditions risk worsening if the ‘protections external’ that have helped in recent years. This is why I struggle to understand the reasons that prompted the ECB to change its policy on the purchase of European government bonds, in a moment that is already economically very complex, in some ways dramatic, such as the one the world and the EU in particular are going through”.
“It’s not up to me to judge but a Nobel prize is not needed, the common sense of a housewife is enough to understand that some decisions cause negative effects because they amplify the crisis. When Draghi launched whatever it takes, the economic and social situation was enormously better than the one we are facing. All the more reason today there was no reason for a squeeze.