The Meloni alliance opposes EU rules and will pay no more than lip service to the 58 neoliberal reforms demanded by Brussels. Her coalition wants to cut taxes and run a bigger primary budget deficit. A half-populist government of this kind in Rome makes it even less likely that Germany will agree to a Hamiltonian fiscal union, allowing the Recovery Fund to deploy an EU fund. It greatly complicates the use of the TPI anti-diffusion tool. “The ECB can’t give Rome a blank check and can’t keep pushing the envelope on monetary debt financing,” BlueBay’s Mr. Dowding said. For now, the ECB is shifting its bond portfolio purchases away from Bunds and into Italian bonds, and on an impressive scale. This has technical limits and is a clear violation of the non-bailout clause of the Maastricht Treaty the longer it continues. The TPI was unveiled in early July, but details have yet to be fleshed out. Nothing has yet appeared in the Journal Officiel and the medium is not legally valid until it does. David Marsh, head of the Official Monetary and Financial Institutions Forum, said there were unresolved questions about who bears the financial risk of TPI interventions. It is unclear whether the tool constitutes a fiscal risk and therefore violates the fiscal sovereignty of the German Bundestag and whether it is compatible with previous decisions of the German constitutional court. “The TPI can only be triggered if there is contagion and many countries are under pressure,” said Peter Schaffrik of RBC Capital. “If push comes to shove, the ECB will be there to buy Italian debt. But could spreads go to 300 first? Yes, they could,” he said. The real danger for Italy is that it may slowly suffocate from unbearably high borrowing costs that remain high and expose the underlying pathologies of the economy over time, until something happens. The country has reserves of power. Private debt is low and Italians hold around €12 trillion in savings and assets. Italy could at any moment escape its public debt trap by confiscating a chunk of private wealth and confiscating bank deposits along the lines of Amato’s haircut in the early 1990s or Argentina’s coralito. The chances that the next Italian government will consider such a measure are nil. It would bankrupt foreign creditors sooner.
