Thread by @fsaraceno

I would like to come back to Draghi's piece, that triggered a lot of discussions, especially in Italy (and in 🇮🇹). To summarize Draghi
a) priority is to provide liquidity to firms (SME)
b) public debt will skyrocket and is for the better

ft.com/content/c6d2de…

1/

My take (🇮🇹):
a) Debt can remain sustainable even if higher (low r ,CB umbrellas), which strengthens Draghi's argument
b) Challenge for EMU: how to lighten countries' burden
=>
1. Institutionalize Lender of Last Resort
2. Create common fiscal capacity
open.luiss.it/2020/03/26/le-…
2/

Commenting on FB (🇮🇹), @r_bellofiore noticed that Draghi remains within a standard and unsatisfactory framework. There is no real rethinking of the paradigm, no real question of "who, for whom, why" production should be sustained.
facebook.com/riccardo.bello…
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I don't disagree with these considerations. Two major crises in a decade necessarily call for much deeper rethinking than what we see now.
But I don't subscribe to Riccardo's view that these questions should be asked NOW. For me this is the time to try to survive
4/

Other people went all the way in the other direction, arguing that Draghi in a few lines dismantles mainstream economics, that he is hammering German stubborn orthodox economists. An example (🇮🇹): kriticaeconomica.com/2020/03/26/lo-…

5/

I am puzzled to say the least.
a) Mainstream economics would be very weak indeed, if a single op-ed was enough to "dismantle" it!
b) What is not "mainstream" in Draghi? Governments need to step in whenever the private sector, the engine of growth, fails to generate enough AD
6/

This is as mainstream as you can get. Draghi adheres to the IS-LM hydraulic Keynesian view (self promotion, read #lascienzainutile, link in pinned tweet). With the exception of a few berserk freshwater economists, and German policy makers, "neoclassical" economists would agree
7/

One final consideration: For now we will have to do with what we have. Hawkish countries do not seem to have fully grasped that we are at a turning point. Their insistence on ESM (and conditionality) as the sole vehicle for a joint effort is appalling
ft.com/content/c3e4db…
8/

There will be no EMU response beyond the €37bn. This is small change.
Governments will have to be "on their own". Meaning that the substantial increase in debt will be national, and they will have the ECB as their sole shield
9/

Furthermore there will be only QE. OMT is triggered by ESM programs, therefore unusable given the stubborn/ ideological insistence of hawks on standard conditionality.
But why is standard conditionality unacceptable? Because lazy southerners want others to pay the bill? No
10/

Problem with standard conditionality: it assumes that this surge of debt is like all others, so subsequent surpluses will be needed "to pay back".
Well, no. We are at war, remember? War debt has seldom been repaid with surpluses.
British example here obr.uk/box/post-world…
11/

Furthermore, the crisis shows the limits of a model that slashes public services like health care in the name of fiscal discipline and lean government.
There will be demand for more, not less government. It will be impossible for democracies to propose old recipes (austerity)
12/

So, this is the the real "battlefield" (many seem to like to use war metaphors these days): How to deal with the post-crisis period. Draghi simply stated the obvious, there will be an unprecedented increase of debt. He said nothing on how to deal with the legacy
13/

We are in open waters on that.
I have only one certainty: Pretending that it will be business as usual and that we can count on austerity to close the Covid parenthesis, seems the best recipe for the end of Europe, and maybe even of liberal democracies as we know them
end/