Michel Boldrin (Padua, 1956) knows Spain very well as he was director of Fedia between 2012 and 2014. As a young man he was secretary of the Communist Youth in Venice, but he developed a position in the free market after receiving his degree in economics. in Economics at the Ca’ University Foscari and, above all, after obtaining his doctorate in America, where he has practiced in the most important universities. Boldrin currently focuses his efforts on studying monetary policy and the decline of Europe.
“What do you need to know when you’re facing a crisis?”
“Depends on what you mean by ‘there’. Is this what you would ideally like to know (will allow you to avoid trouble) or what is useful to know in general? In the first case one Crises are not. At second best, be aware that crises are inevitable components of change, not only economic, but structural as well. Despite my little sympathy for this philosopher I find a ‘Hegelian’ response: it is better to know that a crisis There’s always something new coming out, and if you want to survive, you have to understand it, see it coming, anticipate it.
“What kind of crisis do we have?”
– I think you mean the economy, but at the same time there are several important and difficult crises: first, that of democracy, which has been denied; second, that of Russia, which reverts to its imperialist and ‘Mongol’ historical patterns; Third, that of China, which is starting its long march number two, the one that should lead it to Asian and world empire.
The inflationary crisis is very simple: he managed Covid very badly after being unable to fix the aftereffects of the financial crisis. All of this has resulted in a massive increase in the public debt and money supply in the pockets of households and businesses. These transfers were spent amid a dramatic reduction in national and global productive capacity. Inflation came and politicians and central banks denied its existence. They could have stopped this if they had reduced spending and debt monetization in early 2021!
—Did the European Central Bank (ECB) take so long and get it wrong to raise interest rates?
—they were all wrong: the ECB, the Federal Reserve, etc. They were wrong because they lost their freedom. They have passively financed all kinds of public debt, good ones (some), bad ones (many), bad ones (many more). Look at the Recovery, Transformation and Resilience Plan (PNRR): everyone praises it. Can you tell me what it is for? What does this have to do with the pandemic? In what sense is it going to facilitate greater development and better management of global warming? Almost all of the projects I see are gifts to this or that pressure or electoral group.
—Why was the injection of liquidity from central banks not inflationary until it was?
Three reasons. The injections of the years 2008-2010 were of liquidity for the banks, so that they would not take the whole system down with them. It was a lesson Milton Friedman and Anna Schwartz learned from the crisis of 1929, aptly applied. Quantitative easing (QE) was an attempt to modify the inter-term structure of interest rates with the aim of lowering long-term rates; The success was very partial and most of the liquidity created remained in the reserves of commercial banks, in the central bank, in the hands of households and companies without generating much purchasing power, so it did not generate inflation. The 2020-22 injection funded public spending on transfers that ended up in the accounts of households and companies and was spent immediately. Moreover, in relative terms, it was higher than the previous two. For the reasons mentioned above, this produced the inflation we are experiencing now.
Who is primarily responsible for preventing inflation? ECB or Governments?
From both. The ECB has very partial independence. If the government issues debt, the ECB eventually buys it and creates liquidity to avoid large changes in the ‘spread’ of national debts. And if governments spend on transfers, the debt resources feed inflation.
Are interest rate hikes over?
-I do not think so. Inflation has been attacked of late and now it feeds itself (prices, costs, wages, prices…) so it’s going to take a while.
Will we see negative interest rates again in the future?
“Real rates are still negative!” More negative than two or three years ago! Unless ‘core’ (central) inflation returns to the 2 per cent environment, we will not see a reduction. Those who theorized that rates would remain low “indefinitely” were wrong, as many serious economists have said.
—Was the European Central Bank wrong with its ‘whatever’ loose monetary policy?
—The ‘whatever’ of 2011-14 was a good idea: it allowed us to avoid the sovereign debt and euro crisis. What followed was a mess caused by two factors: political pressure to solve structural problems with monetary injections and overconfidence in the strange ‘Keynesian-MMT’ (modern monetary theory) theories that put money inflation in the hands of consumers. does not become the cause of Full employment has not been achieved.
—Has Quantitative Easing Lasted Too Long?
-Absolutely.
—The US has only one financial authority, so what quantitative expansion does is swap long-term debt for short-term reserves, but it’s always US debt. What the ECB does in Europe is exchange debt from one member state for a European one. loan. Isn’t the ECB issuing uncalled Eurobonds?
—Partly yes, and more every day. This is because some countries (notably Italy and Spain, Greece until 2014-15 and more recently France) lack the political capacity to undertake structural reforms and try to fix everything with public spending, subsidies and transfers. are… which will end the payment of even the most responsible country.
“They were wrong because they lost their freedom. They passively financed all kinds of public debt, from the best to the most harmful.”
—There are more and more people in Spain who say we entered the euro so that central banks would stop financing the deficits of governments destroying the value of our currencies, and what we are seeing is this: an ECB that runs a deficit Finances governments. What do you think of this review?
– which one is correct. The mutual accountability mechanism does not work and the number of ‘free-riders’ countries is increasing. Spain was a model country until 2008, after which it joined the Italo-Greek model with French support.
—Many have heralded Brussels’ debt-issuance of the Recovery and Flexibility Facility as a ‘Hamiltonian moment’ that would usher in European fiscal unity. do you see it that way? What should be the next step?
“Nonsense!” The Hamiltonian moment required constitutional decisions and broad popular support, neither present today. There is simply ‘free riding’ in the hope that Germany and other responsible countries will pay for the chocolate for everyone. The next step should be to return to fiscal responsibility. In its absence no European tax unit is possible.
—Economist Luis Garicano published an article showing that the market has changed its view of European debt, which previously resembled Dutch debt and now resembles Spanish debt. what is this for?
– What I said earlier. Investors understand perfectly well that ‘free-riding’ to the ECB buffet that serves chocolate to all turns all European countries into Mediterranean peninsulas, not the other way around.
—There are economists who believe that the ECB, by taking the norm on climate change, loses independence and effectiveness in carrying out its main objective, which is monetary policy. How do you respond to that opinion?
Climate change management policies are built around national investments, taxes on CO2 and, above all, technological change and a return to nuclear power.
—Are we in the most complicated macroeconomic environment since the 1970s?
—Probably yes, especially because of the political crises I mentioned at the beginning, the state of the world is not good, and geopolitical tensions complicate the management of national economic crises.
—What is the condition of the Italian economy?
—Similar to Spanish, only slightly worse because we have a worse public administration, a more dual labor market and even less ability to reform. Years ago, when I spent a lot of time in Spain, I wrote that you risk being another Italy. This is happening and Italy continues on the bright path of Argentina, our political-cultural synthesis.
“There is room to reduce public spending. You always have to look where: pensions, transfers, subsidies »
—What fiscal policy should be evolved under these circumstances?
—Stop transfers, especially pensions, and keep public spending stable, thereby increasing GDP. This requires freeing up resources from health expenditure towards investment. Don’t raise taxes and when spending stops, cut them. But without structural reforms (schools and universities, R&D, competition policy) we are not going to change the curriculum. More spending and more debt does not solve the problem of development.
—Is there room to reduce public spending? And to make it more efficient?
“Yes there is. You always have to look where: pensions, transfers, subsidies.
-There is a widespread narrative in Italy that the country is not doing well with the Euro. Is it still valid?
—Yes, many Italians still think so. they are wrong. The euro has given him two decades of survival, which he has not taken advantage of to change economic policy.
—It is said that the definition of the European energy architecture after the war in Ukraine is not reliable. Do you agree or not?
-depends on. We have well and quickly fixed the Russian oil and gas problem, which confirms that the choices of the past twenty years were wrong and harmful. Nuclear energy should be reintroduced with courage. Without nuclear there is no transition but economic and social suicide.
—Why is energy price signaling not generating more investment in the exploration of energy sources?
—Because political and fiscal incentives distort investment: If investment can only be made in renewable energy, everyone wants subsidies and no one dares to look at different energy sources.
—In Spain, the powers that be say the economic model has changed and this explains some of the discrepancy between the figures and official optimism. Do you think this is possible?
—Statistics are statistics: they measure what you tell them to measure. If some think there is some other additional value or wealth that we do not measure, then say where they are and measure it. ‘Economic models’ do not exist, they are artificial constructs that serve to organize thought and debate.
