Giancarlo Elia Valori
With a view to assessing the impact of the pandemic that has been afflicting Italy since the beginning of 2020, I think we should examine the careful analysis made by the National Commission for Listed Companies and the Stock Exchange (Consob) in its report on the year 2020.
2020 was one of the worst years for Italy in economic and social terms since the end of World War II. After experiencing a significant fall in GDP, the country has been moving towards economic recovery since the second half of the year and, more markedly, in the early months of 2021, and is showing its own willingness to tackle the unresolved problems, by also taking advantage of the change in the EU’s fiscal policy attitude, which is a necessary foundation for cohesion among Member States.
The 2020 results confirmed the assessment that savings and exports are the two pillars of the country’s economic and social strength. The protection of savings by public institutions follows rules that have been tested and perfected over time. Nevertheless, they need to be updated in the light of technological innovations in the financial sphere. The most solid protection, however, remains its anchorage to real activity, the progress of which is shaped in Italy by export performance. On the other hand, private consumption and public spending show that they have not the momentum they have in other major world economies.
One of the few positive aspects emerging from the report is that the savings ratio of Italian households compared to their disposable income grew by 50% in 2020. Excluding savings invested in listed companies, its yield remained rather low, close to zero.
Considering the amount of financial assets owned by Italian households, each percentage point of return can be estimated at around 30 billion euros, i.e. almost 2% of GDP, the size of a good public budget plan and fiscal manoeuvre of the past.
Taking into account the management charges, savings have contributed significantly to sustaining market stability, but without producing real growth, although this effect is now the result of a crisis that arose for particular and contingent reasons.
Exports experienced difficulties, declining in volume by about one-seventh compared to 2019, due to the concomitant effect of falling global demand and quarantine-related obstacles to domestic production.
Imports fell more sharply, thus enabling Italy’s foreign current account balance to remain positive and increasing slightly with regards to GDP.
In 2020 Italy’s international investment position improved further, showing a surplus for the first time in three decades. The international financial market only partially recorded and acknowledged this favourable structural position of the country.
In the first quarter of 2021, world trade rose to higher levels than pre-crisis levels and Italy’s exports continued to grow at double their rate, thus confirming the resilience and dynamism of Italian companies in the sector – a traditional cornerstone of our economy.
The financial account balance with foreign countries, which had recorded a slight negative balance in 2020, also turned positive, thus confirming the role of Italian savings as a pillar of stability – another Italy’s point of strength.
Confidence in the Italian economy’s ability to react has grown, as shown by the significant reduction in the spread between BTP and Bund interest rates. This is also the result of the decisions taken by the ECB to purchase significant amounts of public bonds and by the European Commission to suspend – albeit temporarily – the Stability Pact and launch the Next Generation EU Plan (NgEU).
The report under consideration, however, states that for the recovery phase to continue, we need to complement and supplement the decisions taken so far to boost companies’ risk capital in view of improving their financial leverage and making them more willing to undertake new initiatives.
This phase provides an important opportunity for the tax reform that has been urged for some time and reaffirmed in the framework of the National Recovery and Resilience Plan (NRRP) implementing the Next Generation EU Plan.
State intervention for social purposes has reached unusual forms and levels, without anyway reducing citizens’ pressure on public resources. This is not surprising because the rational content of human action leads to choose obtaining the best result at the lowest cost.
Private companies, especially the exporting ones, have been forced by competition to solve their problems without delay, so as to avoid being excluded from the market. Their ability to do so is a cornerstone of growth and a foundation for the good and smooth functioning of the democratic system, which has the power to correct the income distribution determined by productive and commutative activity through regulations, taxes and levies.
Conversely, when these forms are insufficient and savings are not used by private individuals, the State resorts to debt, but not always following a well-founded assessment of the intergenerational redistributive effects.
In this regard, the report insists on the fact that – on the basis of the yardstick provided by the laws in force – it is no longer possible to distinguish – with technical and legal certainty – of what currently currency and financial products legally consist – a content that is interrelated due to the connection ensured by the conversion platforms between virtual and traditional instruments.
The market uses a different yardstick from that of the existing legislation, which needs to be incorporated and integrated into it. The activity in movable assets, securities and forms that takes place in the field of financial information is also increasingly interfering with international relations and geopolitical equilibria, the stability of which plays an important role for exchanges with currency and nominal funds, especially as a result of the growing weight they have in a political scenario that is no longer at the height of the peace and prosperity achieved in the last thirty years of integration and cooperation between States.
However, the willingness expressed in various fora by government authorities to seize the opportunities opened up by technological innovations in capital movements and management should not be seen as acquiescence to the loss of market transparency, but as a desire to recover it by making use of the same financial innovations.
Therefore, the favourable attitude towards new techniques must be matched by clear rules on the emergence and exchange of encrypted instruments and their intertwining with traditional monetary and financial assets/liabilities, whether already digitalised or not, as an essential guide for operators managing liquidity and savings.
The spreading of virtual instruments has prompted the emergence of “technology platforms” enabling faster and cheaper ways for accessing payment and securities trading services than those offered by banks and other intermediaries and brokers.
We need to be careful, however, as the custody and exchange functions they initially performed have evolved to accommodate increasingly articulated and complex transactions, including the granting of credits secured by one’s own or others’ virtual instruments, or the conclusion of derivative contracts using cryptocurrencies (Altcoin, Crypto token, Stabe coin, Bitcoin, INNBC, etc.) as collateral, even for several transactions of the same type.
These new market segments are evolving rapidly and there seems to be a dangerous repetition of the experience before the 2008 crisis, when derivative contracts grew to ten times the size of global GDP.
Although with the necessary distinctions, it is likely that something similar is happening in the market for virtual monetary and financial products, especially the encrypted ones.
The use of these instruments in closed forms outside the participants in the initiative (permissionless) precludes private supervision (such as the one carried out by boards of auditors and certification bodies) or public supervision (by supervisory authorities). Without adequate safeguards (rules and bodies), the result is a deterioration in market transparency, which is the foundation of lawfulness and operators’ rational choices.
The well-known negative effects include the shielding that these techniques allow for criminal activities, such as tax evasion, money laundering, terrorist financing and kidnapping. The concentration in the possession of cryptocurrencies that has recently been ascertained may reflect this aspect of the problem.
For Italy, the problem raised has particular connotations compared to other countries due to the existence of a constitutional provision that attributes to the Republic the task of encouraging and protecting savings in all its forms, as well as the task of regulating, coordinating and controlling the credit exercise and operation.
It would be improper and inappropriate to attribute to the specific phrase “savings in all its forms’ and to the credit to be protected a connotation that would also embrace virtual instruments, without going through a specific regulation.
If this were to happen, the responsibility for the consequences suffered by savers could fall on the State, as has already happened in the past, because of the covert or overt legitimisation of their existence and the awareness that through financial innovations market manipulation and the consequent ruin of savers can be achieved.
Therefore, the existence and operation of a security system – even if left to private individuals – must be guaranteed and supervised by the State which, however, must bear in mind that the spreading of digital techniques in finance poses specific requirements and needs that must be addressed globally, otherwise its effectiveness will be reduced.
The legitimisation of the existence of “virtual savings”, in various forms, is now a reality that intersects with savings generated in the traditional way, i.e. without spending a portion of the income produced by labour or capital.
We are faced with radical changes that must be tackled being fully aware of their content and urgency in view of avoiding negative consequences on the micro and macro-systemic stability of the securities market and, in this way, on the savings and economic growth needed to protect them and use them properly.
An obligatory step is to reaffirm that the legal validity of contracts is only guaranteed by their denomination in sovereign currency. If – as it would appear to be the case – we intend to recognise the existence of private currencies, users must make it clear in a specific contractual clause that they are aware of the risks they are running in using non-public currencies.