Is inflation coming back?

In 2021 the global economy is strongly rebounding after the dramatic recession caused by Covid 19. The upturn in economic activity brought attention back to a phenomenon in which there has been less interest in recent years: inflation.

Inflation is a general and sustained increase in prices, which reduces the purchasing power of a currency.[1] Recently, the US and Eurozone have experienced significant increases in their Consumer Price Indexes (CPI)[2], reaching their highest levels in more than 10 years. In October 2021, US CPI increased by 6.2%[3] year-over-year, marking the sixth consecutive month above 5%[4]. Core Inflation, a measure that excludes energy and food prices due to their greater volatility, showed an increase of 4.6% in October 2021, for the fifth consecutive month above 4%. Euro Area inflation reached +3.4% in September[5] (Core inflation +1.9%) and Eurostat preliminary estimates predict further growth in October to reach +4.1%[6].

inflation rates
Figure 1: US and Eurozone Inflation rates, 2008-2021. Source: ECB and St.Louis FED

The pandemic severely affected the global economy, World GDP fell by 3.2% in 2020[7]. Restrictions imposed to prevent the spread of Covid had a major impact on the demand for goods and services, forcing companies to reduce production. In addition, during the periods of greatest diffusion of the virus, some firms were forced to close, especially in non-essential sectors; this fact contributed to a reduction in production and, consequently, decreased their demand for raw materials and intermediate goods. In addition, the heavy drop in aggregate demand has led to lower prices in 2020 compared to 2019. Inflation is measured as the difference between the current year’s prices and the previous year’s ones: so today’s prices are higher than in the past, but they look especially elevated relative to 2020. This phenomenon is called the base effect, but only a small part of current inflation is due to it.

The extraordinary nature of pandemic crisis compared to previous economic crisis and the consequences for inflation

Normally, economic crises originate in a certain sector, for instance the financial crisis of 2008 was caused by the US housing market, and then they spread to other sectors, until they hit the whole economy. The contagion often passes through the credit market, because people affected by the crisis are unable  to repay their debts, then it reaches the financial markets and, finally, the real economy, reducing the wealth and purchasing power of families and purchasing power and pushing firms to decrease production. It takes time for these processes to occur and transform a sectoral crisis into a systemic crisis. Furthermore, in most cases, it also takes time for the economy to heal and recover. Typically, after an economic crisis people are poorer and have less money to consume, companies need time before they reach the pre-crisis production levels. For example, after the 2008 crisis it took 3 years for Germany and France to reach the pre-crisis GDP levels, 8 years for Spain and Italy has not yet been able to fully recover[8].

The economic crisis caused by Covid-19 was totally different. It was sudden and unexpected; demand fell sharply leading to the worst economic recession after WW2, but major Central Banks and governments reacted promptly with large and robust interventions, preserving favorable financing conditions even in the most difficult times. When the health situation improved, the reopening of manufacturing and the whole society, together with the availability of effective vaccines, allowed global demand to resume rapidly. At first, demand was driven by so-called “stay-at-home” goods such as technology, then advances in vaccination campaigns led to a general recovery in consumption also in the service sector and in businesses more closely linked to social life, such as restaurants and hotels. By September 2020, 6 months after the start of the pandemic, the US and the Eurozone were already in sharp recovery. Demand was already increasing for many types of goods. 1 year after the Covid spread, the US economy reached pre-crisis GDP levels  and, by the end of this year, the Euro Area is also expected to close the gap to 2019 GDP levels[9].

The rapid and sustained surge in global demand, which exceeded all expectations, has induced firms to increase their orders for raw materials and semi finished products, putting a strain on suppliers’ production capacity, which itself has been reduced by the pandemic. In addition, many manufacturing companies are importing raw materials, commodities and semi finished products from other geographical areas. The different timing of pandemic waves in different areas of the world has been another source of uncertainty and concern for global supply chains. Other factors that hampered global suppliers included port closures, container shortages during the reopening phases, and difficulties in handling such a fast restart of orders. At the beginning, companies tried to compensate for supply shortages by using inventories in their warehouses, once these were no longer sufficient to meet demand in many sectors they had to postpone orders,  an example is the automotive industry.  Reducing inventories, the firms had to still increase the demand for materials in order to restore them and this has put ulterior pressure on the supply-side and consequently on the prices, causing delays and problems in many industries.

How will we know if inflation is temporary?

For any economy to recover from a downturn, the demand and supply of goods and services need a period of adjustment. In this transitional phase, prices often rise. Economists are not concerned about temporary inflation; they are interested in whether inflation will remain high for long. The question is whether once suppliers are able to produce enough to meet all orders, prices will stabilize or, conversely, whether rising commodity and energy prices will be transmitted to the prices of all other goods. Experts monitor certain variables such as wages to see if there are signs of persistent inflation and transmission to other sectors. In fact, when workers expect prices to remain high for an extended period, they will try as soon as possible to renegotiate their contracts and increase their salaries to avoid losing purchasing power. Higher wages result in sustained increases in the cost of production of most goods and services and, obviously, to a higher inflation for a longer period. Other indicators of persistent inflation could be housing prices and rents.

Why is inflation a big concern?

Price stability is one of the main objectives of all major Central Banks[10]. The ECB and FED have the medium term goal of maintaining a level of inflation stable around 2%, on average. Persistent inflation significantly higher than the target would have negative effects on the economy. Savings in bank accounts would lose value in terms of purchasing power, debtors would have an unfair advantage over creditors in existing financing operations because the borrowed capital would be depreciated. Workers who do not have enough bargaining power to renegotiate their wages in line with inflation would be penalized by becoming poorer. Lastly, high inflation creates distorting mechanisms for household consumption and business investment, eroding the growth potential of the economy. In financial markets, rising inflation causes an increase in yields of debt securities, because any investor wishing to invest in bonds would require compensation for the risk of loss of value of the bond in real terms, expecting further growth in inflation. Indeed, rising yields reduce the market value of existing bonds and cause losses for individuals who invested their savings in the past.

Moreover, if inflation is persistently above the Central Banks’ target, they will consider raising policy rates. Policy rates set the minimum cost of credit, so the price that each bank has to pay to borrow money from Central Banks. Policy rates also determine market interest rates, because all banks will never lend money for a lower interest rate. Rather they will typically charge a premium on that, based on market risks and borrower creditworthiness. By increasing monetary policy rates, Central Banks make it more expensive for banks to borrow money and lend it to customers, generating a contraction in demand and leading to a realignment between aggregate demand and supply, at a lower level. A restrictive monetary policy that decreases demand reduces economic growth and leads to a normalization of prices. However, now we are in a situation of insufficient production and scarcity of commodities and raw materials after a recession, raising interest rates risks being an inefficient instrument that could take the economy back into recession to avoid an excessive increase in inflation. But this will not solve the shortage of productive inputs. On the other hand, inflation, by reducing the purchasing power of households and the production of companies, in any case has a negative impact on economic growth.

Currently, price increases are concentrated on raw materials, commodities and energy goods; some countries are already beginning to experience higher prices in other sectors as well, but there is no predominant view on whether current inflation is persistent or not. Governments and Central Banks will need to carefully monitor the situation, trying to take direct action to address supply chain bottlenecks that are limiting production and availability of resources. But, they will also need to be prepared to intervene more broadly and deeply as the inflation scenario clears up, working to avoid out-of-control price increases. It is crucial that Central Banks do not overreact to current inflation by raising policy rates too soon or too much. Economic recovery is closely tied to how inflation risk will be managed.

Michele Corio



[2] CPI measures the level of prices for a basket of goods and services representative of household consumption in a certain area.





[7] World Economic Outlook update July 2021




The ESM Treaty Reform

In December 2018, the European Council launched a project for the ESM reform. The ESM (European Stability Mechanism) reform aims to increase its functions. The ESM will have an important role in pursuing a greater economic convergence among Member States to increase their competitiveness. Moreover, it will be involved in the framework of the European banking union.
The debate between the governments of EU countries on the reform lasted for years, mainly because of Italy’s veto from December 2019. Finally, an agreement was found and the Italian parliament gave the green light to the reform on 9 December 2020.

A lot of misleading news has circulated about the ESM reform. Some said that it would allow German banks to recapitalise with money from other European countries, or that it would force Italy and other countries to restructure their debt.  None of these statements is true. Moreover, this reform does not change anything about the ESM pandemic crisis support for health care spending during the pandemic.

ESM memes
ESM memes

Actually, the ESM reform concerns:[1]

  • A new role for the ESM as lender of last resort (Backstop mechanism) to the European banking Single Resolution Fund (SRF) in case of a banking crisis. The SRF is still under construction, it should be completed within 2024 and should have an endowment of about 55 billion: 1% of credit institutions’ protected deposits in the banking union. The fund will be directly financed by the banking sector and will intervene in the resolution of failing banks, if there are still creditors left to pay, after all other options have been exhausted (bail-in). (See the article Banking Union: A Step For More Stability for more information)

In the future, if the Single Resolution Fund is called to intervene in a banking crisis and its capital endowment is not sufficient to cover the needs, the SRF will be able to borrow money from the ESM.

The ESM will have up to 68 billion euro available to finance the SRF and these loans to the SRF will have to be repaid at most within 5 years.

The interventions of EU institutions through the SRF and, when necessary, the ESM in a banking crisis seek to avoid that the failure of a bank endangers the entire European banking system. They represent a European risk management tool, created with the objective of protecting all the EU countries from financial crises. They do not favour one state at the expense of another.

  • Changes to the monitoring roles of the EU institutions in case of ESM intervention in support of a state. The European Commission will be mainly responsible for monitoring the consistency of the economic policy measures implemented by the State and for assessing the sustainability of the debt and the macroeconomic framework in general.

The ESM, on the other hand, will monitor the capacity of member countries to finance themselves on the market and potential risks. It will also assess, during the intervention period, the risk that the assisted country will not be able to repay the loans received.[2]

  • Simplification of the requirements to access the Precautionary Credit Lines (PCCL). A State applying for support from the ESM through the Precautionary Credit Lines and fulfilling all the requirements will no longer need to sign a Memorandum of Understanding with the EU Commission and the European Council. It will suffice a letter of intent from the state, expressing its commitment to maintain the economic conditions that allowed it to access the credit line without enhanced conditionality during the ESM intervention period and in the future.
  • Changes to the Collective Action Clauses (CACs). CACs are clauses that allow a decision on a debt restructuring to be approved by a qualified majority of creditors. The debt restructuring is a modification of the initial conditions of a loan (interest rate, maturity, principal, etc.) that softens the debtor’s condition, increasing the probability that the loan is at least partially reimbursed. The reform establishes single limb CACs, clauses with single majority approval. So, it will be possible to approve a decision on debt restructuring with a single resolution of debt holders for all series of a given security, without the need to vote for each individual series issued.

However, this does not mean that the ESM reform imposes debt restructuring on member states as a condition for financial assistance. Debt restructuring is a rare and extreme event, usually carried out by countries close to bankruptcy. A decision to restructure even a portion of a country’s public debt would have dramatic effects on all public debt issues of the country. It would greatly increase the riskiness of the debt and, thus, the interest charged by investors (cost of debt), causing the market value of the securities to plummet.

The ECB holds a large share of Italian government debt, a large share is also held by banks, insurance companies and other financial institutions. Dramatically devaluing these government bonds would generate a crisis for the entire European Union, exactly the opposite of the objective for which the ESM was established. [3]

This amendment was introduced to improve the decision-making process in the case of restructuring by reducing uncertainty about the modalities and timing, not to make it more likely. In case restructuring becomes unavoidable, the absence of a clear and defined procedure may further increase the costs for all parties involved.

Michele Corio


[2] especially section “What will be the ESM’s new tasks in future financial assistance programmes?”


What is the role of credit rating agencies in the economy?

Gianlorenzo Zeccolella

Gianlorenzo Zeccolella

The current financial situation reserves an exceptional role for credit rating agencies, which may actively influence and, eventually, undermine the financial market stability. 

Both in the European Union and in the United States, the number of credit rating agencies is very circumscribed. There are just a few companies that operate in this business with no competition. Moody’s, Standard & Poor’s and Fitch Group, the so-called “Big Three”, hold around 92% of market share[1]. Their role is to assign a credit rating, an essential indicator to gauge both countries’ and companies’ soundness. Ratings contribute to determining the possibility to access new national and international capital resources. 

Ratings as measures of creditworthiness

Several international companies, before issuing a bond, ask the rating agencies to assess the financial instruments and assign a rating (often obliged by legislation), which consequently authorizes the allocation on the market. Moreover, not all the investors assess on their own the credit quality of companies and countries, before investing. Many of them directly rely on the evaluation provided by credit rating agencies.

The higher is the credit quality, the higher will be the rating. Together with the lower cost of capital, a high rating guarantees more accessibility to external debt[2]. The scale goes from AAA the best grade, to D, meaning Default (the scale is slightly different for Moody’s. See the table below). Companies rated at BBB- or higher are in the investment-grade area, while the ones with ratings below the BBB- threshold are in the speculative-grade zone (also defined “junk” or non-investment).

Moody’sStandard & Poor’sFitchDescription
AaaAAAAAAInvestment Grade
Ba1BB+BB+Speculative Grade

Ratings as risk indicators

The other side that can be captured using ratings is the risk involved in an investment. It is straightforward to understand that a debt issuer – generally a State or a company – with a high credit quality and a high rating will be a safer investment than another with a speculative grade rating. 

Institutional investors, such as pension funds, mutual funds and banks have different restrictions on the amount of risk they can (and they are willing to) bear.

This is partially due to regulation. Savers are investing their money in a pension fund to ensure the possibility to live respectably after retirement, without any interest in being exposed to speculative assets. Also, the investment strategy matters. Indeed, every portfolio is built pursuing certain objectives. In finance, expressed in terms of expected returns and risk. Investors, choosing to use their money to buy financial instruments instead of consuming, should receive an appropriate remuneration, proportional to the level of risk they are bearing. However, most of them would not accept the risk of losing a big portion of their capital chasing unrealistic high returns. For this reason, most of the investors will not be willing to invest a great share of their money in low rating government or corporate bonds. 

The importance of credit ratings for States

When a State is downgraded the impact on its cost of borrowing can be very significant, especially if its previous ratings were already low. Going from the lowest scores of investment grade to speculative grades can cause the exclusion from the main government bond indexes and, thus, from the portfolios of many institutional investors. This generates not only a dramatic increase of the cost of borrowing money on the markets but it can seriously reduce the capacity for that issuer to finance additional spending with debt. Today, according to Moody’s and Fitch, Italy is just one notch above the junk area and the covid crisis risks to compromising its creditworthiness.

CountryS&P’sMoody’sFitch10 years government bond yield
United StatesAA+AaaAAA1.12%
United KingdomAAAa3AA-0.29%
New ZealandAAAaaAA1.07%
South KoreaAAAa2AA-1.72%
ArgentinaCCC+CaCCC51.23% (7 years maturity )

Looking at the ratings and the yields on government bonds reported in the table above, it is noticeable that also other factors affect the bond yield. Indeed Italy has similar ratings to Russia, but a much lower cost of debt.

The intervention of the European Central Bank (ECB) has certainly played a crucial role in maintaining low the yield on European countries’ bonds, especially for Italy. ECB implements its monetary policies through different channels. Among them it is worthwhile to mention the Open Market Operations and the Asset Purchase Programmes (APP)[3]. These allow the ECB to provide liquidity at a very low cost to financial institutions and banks of the Eurosystem, in exchange for this liquidity the banks provide a collateral, which can be for example a government bond. Through these instruments, the ECB receives government bonds of the EU countries, relieving the pressure on the countries yield rate. However, government bonds have to meet certain requirements to be eligible to be used as collaterals[4]. One of them is being at least in the investment grade area. Otherwise, in the worst scenario, the ECB would not be anymore allowed to hold and  buy such government bonds. On 7 April 2020, to reduce the possible damages of a downgrade during the covid crisis, the ECB decided to adopt temporary collateral easing measures. Nowadays, all the marketable assets and issuers, which had at least the lower investment grade until 7 April 2020, remain eligible even in case of further downgrades (up to two notches lower)[5]. However, the fact that collateral eligibility for central banks’ purchasing programmes are tied to ratings show the relevance and the weight of these institutions in the financial markets.


Credit rating determinants and the main concerns

CRAs assign ratings considering various determinants of the debtor: 

  1. Ability to pay–back the borrowed amount. It includes the principal plus the accrued interests; 
  2. Ability to do it on time; 
  3. Likelihood that the obligor may not pay because of default.

Once analyzed these three broad categories, analysts can attribute a rating that determines the company’s creditworthiness.

Recently, the most important credit rating agencies have acquired greater importance on the capital and financial markets, becoming a target for several critiques. The biggest and most prominent credit rating agencies, namely Standard and Poor’s, Moody’s, and Fitch currently have a massive impact on the capital and financial market. Their assessment of a company’s financial quality represents a fundamental component in determining the pricing of credit risk, which in turn denotes the cost of both internal and external resources. 

However, the debated topic is whether those agencies may have some incentives to assign inflated ratings. The problem springs since agencies are not paid by investors but by the same companies that ask for the credit quality assessment (obligors). The borrower, who pays the agency, is interested in high ratings, which would guarantee stability (to keep the cost of external debt low). It is not complicated to understand that in this scenario, some interests are conflicting. The company that needs the assessments pays the agency that would probably be more motivated to give a high rating.

Structured products, such as Mortgage Backed Securities (MBS)[6], have always been more frequently placed on the market for several years, especially in the United States. Default rates were much more significant than what their intrinsic value was suggesting. Decomposing these structured products would have given assets with awful shapes but with an overall high rating. For this purpose, agencies have been blamed for assigning inflated credit ratings. All these inefficiencies played a critical role in the subprime crisis in 2008.

Furthermore, the insurmountable entry barriers are another crucial issue. The market of credit rating agencies is wholly dominated by three companies, characterizing it as an oligopolistic system. The leading firms may decide to cooperate and create a cartel that would increase the prices and discourage new entrants. Besides, CRAs may offer inflated ratings. In this case, it would be tough for regulators and supervisors to detect whether common shocks or collusive strategies drive extreme assessments.

What can be done to improve the situation?

It is fundamental to create a scheme of incentives where firms are motivated to deviate from such collusive synergies. An idea could be to establish a public rating department in the main global institutions – such as the International Monetary Fund or the Central Banks –  that can assess the companies’ credit quality. Their outcome must be compared with the agencies’ results to notice possible differences. If there are large differences (unfair assessments) not driven by fundamental motivations, the regulators may refuse to grant the license to operate in the credit rating sector in the future period. This action may sound unrealistic. Indeed, even in case of weird and unfair behaviors, rejecting the permission to Moody’s, Standard & Poor’s or Fitch seems improbable due to their market power[7].

Notwithstanding, the conclusions drawn on some undesired qualities and drawbacks of ratings do not have to distract us from the importance of them. Indeed, credit ratings offer a great informational substance that, if not subjected to bias, might be very useful for investor’s decisions. 

Michele Corio and Gianlorenzo Zeccolella

Sources and references


[2] debt held by foreign banks




[6]Financial instrument secured by a mortgage or collection of mortgages.

[7] Stolper, A., 2009. Regulation of credit rating agencies. Journal of Banking & Finance 33, 1266–1273.

EU needs a joint reaction against the covid crisis

The covid-19 pandemic hit Europe violently. The new coronavirus, which infected the first human in the Chinese region of Hubei, is changing our lives, subverting the political and economic framework. In the initial phase, the response of the European countries was scarcely coordinated and, often, late. The impact of the virus has been particularly severe in the economically most developed regions: Lombardy, Emilia-Romagna and Veneto in Italy; the Community of Madrid and Catalonia in Spain; the region of Paris, Ile de France; Bavaria, North Rhine Westphalia and Baden Württemberg in Germany; the Stockholm’s county in Sweden; Flanders in Belgium. Inevitably, the deep integration among the economies of the various EU countries was also an efficient vehicle of transmission for the virus. In absence of a joint strategy for the reopening, at European level, the risk of new spreading of the infections through these paths will be even higher in the next weeks.


Here you can see the diffusion of the virus on the interactive map


The most affected countries, Italy and Spain, have adopted very strict measures. They allowed to continue to carry out the production only to the companies producing essential goods and services or involved in strategic activities for the management of the crisis. On the other hand, the majority of EU countries chose a softer lockdown, closing commercial business in contact with the public, leaving most of the production companies open[1]. However, these restrictions, necessary to reduce the sanitary emergency, risk to undermine the European economy. The dimension of the crisis will diverge country by country. Indeed, the strictness of the measures, the direct and indirect damages of the epidemic and the financial capacity of each country to support its economy will make the difference. A precise and punctual intervention from the State is needed, providing the required liquidity to make it through the crisis.


The necessity to finance the spending with debt and its critical issues.


The main sources of financing for a State are taxation and the issuance of bonds on the markets. In the midst of a pandemic, a short-term increase in taxation is not a sustainable tool. The objective is to safeguard firms and to keep the productive and economic system alive. Instead, it is inevitable to increase the public debt to reduce the impact that an announced economic recession will have on every citizen’s life. As they demand loans on the markets to finance their spending, the States issue debt securities. Like any other loan, also government bonds embed the market risk – a reduction in the market value of the bond may cause losses to the holder – and, in extreme cases, the risk that the capital lent will not be completely reimbursed.
Generally, the more investors – banks, financial institutions, pension funds and households – will find it likely that the loan will not pay off, the more they will demand a high yield for the risk they are bearing. At the same time, the cost of the debt for the State will increase as the risk perception of the investors increases. Political and economic events together with the amount of debt outstanding affect the finances of the States. Moreover, they influence also the investors’ expectations and bond yields. A typical unit to measure the risk on public debt is the spread between a safe asset – usually in EU the reference is the German bund – and another government bond. Besides, to evaluate the dimension of a public debt it is common to use the Debt/GDP ratio (this topic was also discussed here).

The current situation of Public debt in the main EU countries;jsessionid=3EE7A0FCAD10FF1B716097B51DEA188E

It seems clear that the European States are not all in the same condition. Spain and Italy currently are facing the hardest consequences from the pandemic, but they are also the States with the highest debt. In the last years Italian GDP grew slowly[2], and its debt reached 134% of GDP in 2018[3]. Similarly, Spain had a Debt/GDP ratio equal to 97.6%[4] in the same year. However, recently Spanish GDP had a consistent growth, 2% in 2019 and an average growth of 2.8% per year since 2015[5]. Nonetheless, before the financial crisis in 2007 Spain had a debt/GDP ratio equal to 35%[6]. The huge increase in debt due to the crisis forced the Spanish government to reduce the public spending and to enforce several additional reforms to increase its competitiveness and maintain the possibility to raise funds issuing debt on the markets.


Therefore, Spain and Italy are caught in the crossfire. On one side they are facing an unprecedented sanitary crisis, on the other they have to spend massive amount of money for the reconstruction of their economies. In addition, they may not be able to benefit of cheap borrowing on the markets.


Already as 21st April, the yield on 10 years Italian government bond (BTP) was 2.02%[7]. The equivalent yield on Spanish bonds was 0.97%[8]. As a comparison, it is interesting to see that the yield on 10-years German bonds is negative, equal to -0.481%[9]. Germany had a Debt/GDP ratio of 61.9%[10] in 2018. While, Netherlands has a yield of -0,177%[11] and France has 0.06%[12]. Following the increase of these debts, also the related yields will grow. The cost of financing will increase for all the EU countries, but this effect will be much bigger for the States that already have a high debt.;jsessionid=3EE7A0FCAD10FF1B716097B51DEA188E


The debate about the EU measures against the crisis


The sanitary crisis is a global emergency. In front of covid-19, there is no virtuous country, nor vicious. It makes no sense to blame the most affected countries with moral judgements. This crisis is symmetric, differently from the financial crisis of 2008. Notwithstanding, its impact and the timing will be different country by country. Since the beginning of the emergency, there has been a hard debate in the EU. The two factions were the supporters of a joint issuance of debt as common response to the crisis – among them Italy, Spain, France – and the opponents – among them Germany and Netherlands. At least in the initial phase, the opponents, confident on their ability to face the economic crisis on their own, were available to help the other countries only under strict conditions. Their proposal involved rigid rules on the repayment of the public debt and on the duration of the loans – European Stability Mechanism (ESM) with enhanced conditions credit lines.
Meanwhile, the European institutions gave their support to the most damaged countries with the specific Pandemic Emergency Purchasing Programme (PEPP) of the European Central Bank (ECB). So far, this intervention allowed to all the countries to maintain a low yield rates on their bonds. This is especially true for Italian BTP. Additionally, EU allocated other 540 billion euro to support the economy (more info here). Unfortunately, the dimension of the crisis requires further interventions. Issuing common debt – Eurobond or European recovery bonds – to finance the economic reconstruction can be the correct solution. Eurobonds would allow to the countries in difficulty to borrowing low cost from the market, making a step further in the European integration process.


Why a joint intervention is in the interest of the whole EU?


It’s not only a matter of European solidarity. Facing a recession of Eurozone GDP estimated as 7.5% by the IMF[14], no one is stable. There are not solid countries and individualism is not a feasible option. Furthermore, the European Union is a supranational organization that has shared for many years the benefit of being an open economic area. Freedom of movement for workers, goods and capital generated an interdependence among the member States. This is also confirmed looking at the destination countries for the export of Netherlands, Spain, France, Germany and Italy in the figures below.;jsessionid=3EE7A0FCAD10FF1B716097B51DEA188E

The export is a fundamental component of the GDP for all the countries above. Especially for Netherlands that accrued an export/GDP ratio of 82.5% in 2019. Instead, Germany had a export/GDP of 46,9%[15]. Analysing the destination of this export it is extremely evident that the biggest share is directed to other EU countries. Italy is the fifth country for the percentage of goods and services received by the Netherlands and the sixth for Germany. While, Spain is the seventh destination country by dimension of export for Netherlands and the eleventh for Germany. Moreover, Germany and Netherlands are also destination of a significant share of Italian and Spanish export[16].

The European economies are deeply connected. Now it’s time for the European leaders to find an agreement for common and strong measures against the crisis. It will take time. It may require changes in the treaties and the EU budget has to be increased with additional contribution from every single country. This is in the interest of all the member States. Otherwise, the economic crisis will follow the same paths as the epidemic. The risks are an economic depression and the rise to the power of Eurosceptic parties, which may lead to the end of the European project.


Michele Corio



































Let us trade

Giovanni Sgaravatti

Giovanni Sgaravatti

The European Union was built to restore peace and equilibrium in a continent wounded by the two World Wars. However, a second objective simplified the path towards the Union: the ambition of creating a European economic area. These two goals are the foundations of the EU. As Churchill emphasized, they are deeply connected with each other. The direct evolution of the second objective is the European Single Market (ESM). Having a GDP of 13 trillion euro and a population of 500 million people, it represents the largest economic area without barriers in the world. The abolition of customs duties, legislative obstacles and restrictions on the quantities of goods and services that can be exchanged, allowed to the EU member states to grow in synergy. 

The economic benefits directly related to the European Single Market are estimated at 8.5% of the EU GDP. These have generated an increase of the employment rate, creating 2.8 million jobs and stimulating the birth of 21 million new companies. The cornerstone of the European Single Market is the free movement of goods, capital, services and labour. In fact, the ESM is not just an efficient tool to strengthen the relationships and the cohesiveness among the countries, it also guarantees a regulated market with high standard of quality for the products exchanged. The European Commission establishes the safety and quality standards of the products to safeguard the consumers, taking care also about the protection of the environment.

The EU is also continuously changing and updating its regulation to follow the main social and economic needs of its citizens. For this reason, recently the debate has focused on technology, data protection (GDPR) and e-commerce. Today a relevant portion of the exchanges of goods are made online and this trend will grow in the next years. Therefore, the EU has devoted explicit attention to such sector, creating the Digital Single Market. The intention is reducing legal obstacles and inefficiencies that condition e-commerce performances, but also contributing to a fair legislation of the web. In this debate crucial aspects are: copyright protection, online products’ quality standards and consumers’ protection. The European Commission evaluated the potential impact on the European economy of the Digital Single Market at 415 billion euro per year.

The fundamental role of the EU to support the economy of member States is not limited to the European Single Market and internal synergies. Belonging to the Union, European countries have a significant power on the global market and they can defend their interests negotiating with the other world’s super powers such as the US and China. Some examples are anti-dumping measures, the rules on foodstuffs quality standards, on children’s toys or on pharmaceutical products and pesticides.

The volume of Italian exports between 2002 and 2018 rose from 266 to 463 billion euros, which (discounting for inflation) is equivalent to an increase of 44%. Of these 463 billion, 202 account for exports destined for countries outside the European Union (in 2002 they were 103 billion, which means an increase of 68%). Between 2002 and 2018, the EU negotiated and allowed the entry into force of 23 free trade agreements (FTAs) with as many countries. This type of agreements has often been criticized (with good reason) for the lack of transparency in the negotiations. The EU responded becoming the first institution in the world to publish all the approved chapters, whilst the whole agreement is still being negotiated. 

Furthermore, the highly controversial mechanism for resolving disputes regarding investments has also been completely revised, guaranteeing a high level of investor protection and at the same time maintaining the full right of governments to regulate and pursue legitimate public interest objectives such as the protection of health, safety or the environment (see the most recent agreements, such as CETA or the one with South Korea). 

Finally, one of the fears of skeptics is that of facing unfair competition for products protected at the EU level, such as indications of origin (IG). This fear is mostly unfounded since the EU has always fought to defend all the characteristic products of its territory, especially the Italian and French top products. With CETA, Italy obtained the recognition of as many as 41 IG (corresponding to 90% of the total), and in the first 5 months of 2019 the country saw an increase in exports of almost 13% (for a value of € 3.5 billions) with a strongly positive trade balance (import-export ratio of 1: 3), while with Japan, food exports grew by 80% with the recognition of 45 Italian excellencies (IGP).

Free trade agreements are often accused of being for the exclusive benefit of large companies and of hindering small businesses. In reality, FTAs benefit the most efficient exporting companies, be they large or small. Examples of Italian small and medium enterprises that have benefited from FTAs are: the family company of Crotone Astorino (which after the entry into force of the FTA with South Africa in 2015 began to export pasta for volumes greater than one ton, using ancient Italian grains); the Venetian design company Moving (that increased its turnover from the Chilean market by 51% between 2011 and 2015); the Trapanese company Graffeo Cravatte (nowadays enormously benefitting from the total abatement of customs duties with Canada, until yesterday at 16-18%). There are lots of success stories, please find some of those at this link.

Giovanni Sgaravatti and Michele Corio

References:*&c=#filter-countries-Italy [not mentioned] [not mentioned]

All roads lead to Rome

A travel to Europe from 1957 to 2017: 60th anniversary bring back us to Rome again…

“All roads lead to Rome”

Since the monarchic period until the Imperial age, the Roman Forum has been the hearth of the city. The whole Europe looked at it as a reference point.

Magnificent temples, basilicas, Roman Senate, Emperors’ palaces were gathered in few meters.

A lot people used to come to Rome, many roads were spreading to all quarters, they arrived from the green lands of Sannio to Constantine’s Arch, from Spain to Jupiter’s temple, from Palestine to Massenzio’s basilica.

The sun rose behind the hills of Palatino lighting up the “Urbe”, in the landscape the Coliseum appeared.


Erasmus: the birth of a dream

Thirty years after the birth, here is how everything began…


15th June 1987 is a normal day for most part of European people, actually it is an historical date in which a success story of sharing, cultural exchange and growth for European and international students has become reality. It marks the day of Erasmus birth, the anniversary of the ratification of the European Council of Ministers established the Erasmus programme (87/327 EEC).


Sunrise shakes



Sunrise shakes

These few lines are the beginning of a new experience, born to share ideas, sensations, feelings and knowledge, with the eyes focused on the whole world.

<< Everything has already begun before, the first line of the first page of every tale refers to something already happened out of the book >>.
Italo Calvino

Sunrise leads to a new world or another perspective, everything beginning from myself.


Giro d’Italia, one hundred years of an eternal youth



Sweet hills, impervious mountains, amazing landscapes, we observe, sliding from the seaside to the highest peaks. We watch thousand of kilometres, crossed by a trail of colored jerseys, which run through Italian peninsula for many hours a day.
Three weeks on the road providing strong emotions and spectacle.
Despite this, cycling is not the most suitable sport for the post-modern society, where immediacy rules.


Sta tornando l’inflazione?

Il 2021 è un anno di ripartenza per l’economia globale dopo la drammatica recessione causata dalla pandemia. La ripresa dell’attività economica, però, ha riportato al centro dell’attenzione un fenomeno del quale ormai non si parlava più da diversi anni: l’inflazione.

L’inflazione è un aumento generalizzato e sostenuto dei prezzi che causa una perdita di valore della moneta in termini di potere di acquisto[1]. Negli ultimi mesi negli Stati Uniti e in Europa l’indice dei prezzi al consumo[2], ha registrato aumenti che non si vedevano da oltre 10 anni. Negli USA l’inflazione si è attestata al +6,2%[3] a ottobre 2021 rispetto allo stesso mese del 2020, per il quinto mese consecutivo al di sopra del +5%.[4] L’inflazione core, indicatore che misura la variazione dei prezzi al netto dei prezzi dei beni energetici e alimentari che sono normalmente più volatili, è comunque cresciuta del 4,6% a ottobre 2021 ed è da quattro mesi oltre il 4%. Nell’Eurozona l’inflazione ha raggiunto il +3,4% a settembre [5](+1,9% l’inflazione core) e dovrebbe arrivare addirittura a +4,1% [6] a ottobre secondo le stime preliminari di Eurostat.

inflazione eurostat
Inflazione negli Stati Uniti e nell'Eurozona nel periodo 2008-2021. Fonte dati: BCE e St.Louis FED

La pandemia ha avuto effetti drammatici sull’attività economica in tutto il mondo, il PIL globale è diminuito del 3,2%[7] nel 2020. Le restrizioni hanno diminuito fortemente la domanda di beni e servizi costringendo le imprese a diminuire la produzione. Molte imprese, inoltre, sono rimaste chiuse in alcune fasi dell’emergenza sanitaria, specialmente tra le attività considerate non essenziali, riducendo a loro volta non solo la produzione ma anche la domanda di materie prime e semilavorati. Il crollo della domanda aggregata ha avuto tra le varie conseguenze anche un calo dei prezzi nel 2020 rispetto all’anno precedente. L’inflazione che si registra oggi è misurata come incremento dei prezzi rispetto a quelli del 2020: dunque i prezzi oggi sono più alti che in passato, ma sono particolarmente alti se confrontati con quelli dell’anno della pandemia, è il cosiddetto effetto base. L’aumento dei prezzi che si sta verificando ora, però, dipende solo in parte dall’effetto base.

L’inflazione e la straordinarietà della crisi pandemica rispetto alle crisi economiche del passato

Normalmente le grandi crisi economiche nascono in un dato settore, ad esempio la crisi del 2008 si sviluppò a partire dal mercato immobiliare statunitense, e poi si propagano agli altri settori dell’economia. Spesso il “contagio” passa dal mercato del credito, a causa dell’impossibilità dei soggetti coinvolti nella crisi di saldare i propri debiti, ai mercati finanziari e all’economia reale, riducendo le possibilità di spesa delle famiglie e la produzione delle imprese. Processi di questo tipo impiegano del tempo prima di degenerare in una crisi sistemica, in grado di colpire l’intera economia, e necessitano anche di diverso tempo prima che siano risolti. Dopo le crisi le persone hanno a disposizione meno denaro per consumare, le imprese impiegano diverso tempo a tornare ai livelli di produzione precedenti e l’economia recupera lentamente: tra i maggiori Paesi europei dopo la crisi finanziaria del 2008 Germania e Francia hanno impiegato circa 3 anni a recuperare i livelli di PIL ante crisi, la Spagna 8 anni e l’Italia non è ancora oggi tornata a quei livelli di PIL.[8]

La crisi economica pandemica invece è stata improvvisa, ha causato un crollo della domanda e dell’economia senza precedenti dalla Seconda guerra mondiale, ma le Banche Centrali e i governi hanno reagito rapidamente con interventi imponenti che hanno mantenuto condizioni favorevoli sul mercato del credito. Le riaperture delle attività produttive con la diminuzione dei casi e con la disponibilità dei vaccini nei vari Paesi hanno permesso alla domanda di ripartire in tempi brevi, inizialmente per l’acquisto di beni cosiddetti “stay at home” come i beni tecnologici, poi con l’avanzamento delle vaccinazioni si è avuta una ripartenza generale dei consumi, dei servizi e anche di attività maggiormente legate alla socialità, fortemente colpite dalla crisi, come alberghi e ristorazione. Dopo soli 6 mesi, a settembre 2020, negli Stati Uniti e in Europa la domanda di molti beni era in forte ripresa, dopo poco più di un anno nella primavera 2021 l’economia statunitense era già tornata ai livelli di PIL pre covid ed entro fine 2021 il recupero dovrebbe essere completato anche nell’Eurozona[9].

La ripartenza della domanda più rapida e più forte delle attese ha costretto le imprese ad aumentare di molto gli ordini di materie prime e semilavorati mettendo in difficoltà le aziende produttrici, a loro volta rallentate dalla pandemia. In molti casi poi le materie prime provengono da aree geografiche differenti rispetto alle aziende che le utilizzano nella produzione, ciò ha fatto sorgere ulteriori problemi a causa dello sfasamento temporale delle ondate pandemiche nelle varie aree del mondo. Ad aggravare il quadro ci sono state le interruzioni negli scambi commerciali internazionali per le chiusure dei porti e per i periodi di lockdown e, nelle fasi di riapertura, la scarsità di container e moli disponibili per gestire un volume così elevato di ordini. Per continuare a produrre in un primo momento le imprese sono state costrette ad utilizzare le scorte di materiali e semilavorati accumulate in precedenza, terminate queste, in alcuni settori come quello automobilistico sono addirittura arrivate a rinviare gli ordini. Inoltre, la necessità di ripristinare le scorte di materiali ha portato ad un ulteriore aumento della domanda e di conseguenza a prezzi ancora più elevati, causando ritardi e disagi in vari settori.

Come sapremo se l’inflazione passerà presto?

Dopo ogni grave crisi economica la ripresa richiede una fase di assestamento e riallineamento tra domanda e offerta di beni e servizi, questo riallineamento spesso ha effetti anche sui prezzi; ciò che interessa davvero alla maggior parte degli economisti è sapere se l’inflazione è temporanea e, dunque, non appena si tornerà a produrre abbastanza da soddisfare gli ordini i prezzi torneranno sotto controllo oppure se il rialzo dei prezzi delle materie prime e dell’energia avrà come conseguenza un aumento dei prezzi di tutti gli altri beni.

Esistono alcuni segnali che vengono monitorati dagli esperti per comprendere se l’inflazione sta diventando persistente e si sta diffondendo ad altri settori: uno di questi è l’aumento dei salari. I lavoratori, infatti, se si aspettano prezzi più elevati per un periodo più lungo non appena potranno ridiscutere i propri termini contrattuali richiederanno stipendi più alti per non perdere potere d’acquisto. L’aumento dei salari comporta un aumento dei costi di produzione di beni e servizi più durevole e dunque un’inflazione più elevata per un periodo più lungo. Altri indicatori possono essere i prezzi delle case e i canoni di affitto.

Perché ci preoccupa tanto l’inflazione?

Le principali Banche Centrali internazionali hanno come obiettivo di medio periodo della propria attività la stabilità dei prezzi[10], cioè il raggiungimento di un livello di inflazione del 2% annuo nel caso di Federal Reserve e BCE. Un’inflazione significativamente e stabilmente più elevata avrebbe effetti negativi sull’economia perché i risparmi accumulati nei conti correnti perderebbero valore in termini di potere d’acquisto, sul mercato del credito i debitori sarebbero avvantaggiati a scapito dei creditori perché vedrebbero il proprio onere svalutarsi, le classi di lavoratori che non sono in grado di ridiscutere i propri termini contrattuali sarebbero penalizzate e diverrebbero più povere e, infine, ci sarebbero effetti distorsivi sui consumi delle famiglie e sugli investimenti delle imprese. Sui mercati finanziari l’aumento dell’inflazione causa un rialzo dei tassi di rendimento dei titoli di debito, perché l’investitore temendo l’aumento dei prezzi richiede un rendimento più alto che gli permetta di non perdere potere d’acquisto; l’aumento dei tassi di interesse riduce il valore di mercato dei titoli di debito esistenti e genera perdite per gli investitori che li avevano acquistati in precedenza.

Qualora l’inflazione dovesse trovarsi stabilmente al di sopra del target delle Banche Centrali, esse potrebbero decidere di aumentare i tassi di policy che determinano il costo minimo del credito, cioè il prezzo minimo che ogni banca deve pagare per prendere in prestito denaro dalla Banca Centrale. Il tasso di policy determina di conseguenza anche i tassi di mercato, poiché ogni banca non presterà denaro mai ad un tasso inferiore rispetto a quanto richiesto dalla Banca Centrale, anzi normalmente applicherà a questi tassi un premio, che dipende dal rischio di mercato e dal rischio specifico del debitore. L’aumento dei tassi rende più costoso per la banca prendere e quindi prestare denaro, causando una contrazione della domanda e un riallineamento tra domanda e offerta. La politica monetaria restrittiva, rallentando la domanda, frena la crescita economica e riduce la pressione sui prezzi; tuttavia, se ci si trova in una situazione come quella attuale di scarsità e produzione insufficiente di materie prime, dopo una forte recessione, l’aumento dei tassi di policy rischia di essere inefficace nel risolvere il problema della scarsità di risorse e di trascinare l’economia nuovamente in recessione per impedire l’aumento dell’inflazione. Allo stesso tempo, però, l’aumento dei prezzi frena la crescita economica, limitando il potere d’acquisto delle famiglie e la capacità produttiva delle imprese.

Attualmente l’aumento dei prezzi è concentrato sulle materie prime e le fonti energetiche, in alcuni Paesi si iniziano a vedere effetti di aumento dei prezzi anche in altri settori ma, al momento, non c’è ancora una visione prevalente sul fatto che sia temporanea o persistente. I Governi e le Banche Centrali dovranno monitorare attentamente la situazione, cercare di risolvere i colli di bottiglia che limitano l’offerta di materie prime ed energia, pronti ad intervenire tempestivamente per contenere aumenti dei prezzi generalizzati. È importante anche che le Banche Centrali non rispondano eccessivamente all’aumento dei prezzi aumentando i tassi troppo o troppo presto. La ripresa economica post pandemia dipende per buona parte da come sarà gestito il rischio inflazione.

Michele Corio



[2] L’indice dei prezzi al consumo misura il livello dei prezzi di un paniere di beni e servizi, rappresentativo dei consumi delle famiglie in una determinata area geografica. La variazione dell’indice è una delle misure di inflazione più utilizzate





[7] World Economic Outlook update July 2021





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