Sviluppo. Distribuzione. Financing.


Milano hard fight shows Rome the way to Italy’s Renaissance

Coronavirus has cornered Italy into an unprecedented and unbelievable situation, where opaque facts are randomly surrounded by threatening figures. Lombardy – one of the wealthiest regions in the world and running one of the better-managed social health systems – has been definitely taken by surprise and circled as the 2020 black swan’s nest. The whole region – including Milano, its glittering capital – is under the first curfew since World War II.

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Meanwhile, the pandemic that started in China is expending throughout the world, saving no corners of the planet from exponential contaminations. Most likely, the first countries devasted by the plague will be the first to resurge and skepticism towards Italy’s strategy may turn Italy’s approach into a benchmark. As Italian citizens are blocked at most countries’ borders (even within Schengen European space), residents experience on their skins how it feels being an unwanted migrant. The situation is dramatically ironic and time will tell if the Italian Government is taking the right measures to protect the country’s interests.

However, there may be room also for optimism: the medical crisis is an unwelcome yet unrepeatable opportunity to fully reposition the country in Europe as well as globally. Appropriate communication is one part of the story, but the real challenge is how to leverage upon the public health crisis to restore national pride and resolve the country’s cancer: the mismanagement of public finance (the evidence of medical infrastructure gaps vs. Germany makes it crystal clear why the Bund/BTP spread is more than mere trading tactics).

Italy’s’ politicians ceased to exhibit the required physique du role a long time ago. Thanks to the Coronavirus tsunami, they – unconsciously, better positioned than anyone else and certainly without deserving it – enjoy today the once in a lifetime opportunity to enter history books by writing the ultimate essential page in contemporary economics.

Italy’s massive public indebtedness, the low current prevailing levels of interest rates – which make debtholders (worldwide) already losing control of their savings in exchange for very little return (if any) -, the large domestic private savings’ stock, the persistence of provincial and rural economics and manageable degree of urbanization, the abundance of tangible and intangible assets, know-how, the unique heritage and legacies…all these and more …..make Italy the perfect lab for migrating towards socially sustainable capitalism. If the world is lucky, Coromvirus will catalyze Middle age crisis into New age Renaissance

The Italian Job: a spy story? Not quite

You need not be Ian Fleming to gauge why Italy is everyone’s one catch. Standard of living, climate, historic heritage, food & fashion……the Byron’s and Goethe’s Grand Tour would be hardly conceivable in any country other than Italy. And still is.

Until Berlin Wall’s collapse (1989), Italy was the most valuable tile on the planet’s geopolitical chessboard: host of the most durable power (the Vatican), home of the strongest communist party among the NATO roaster and – last but not the least – the strongest liens with the US, thanks to Christian democrats uninterrupted dominance of the country and, thus, a fences soviet ambitions to recruit among NATO member states……..

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.Italy as the ally anyone would court, a gem full of beauties and spirit. The perfect backdrop for Mr. Bond’s fireworks and stunning ladies

Then the world turned into a different page: globalization, emerging economies, reshaping of global financial leaderships …….from being courted as the cornerstone of international global equilibria, Italy progressively lost charisma. The shabbiest political casta, unproductive and lacking any sort of vision, made the rest. Years of irresponsible public budget mismanagement created the worst storm: the weakest public finance with the wealthiest households, 90 % of historic heritage and sheer global leadership in several industrial sectors. From being the most sought after ally, Italy eventually became everyone’s hunting territory; the country’s assets became everyone’s prey.

Then the Euro came; what might have been the favorable externality catalyzing the shift in public finances turned to be the biggest lost opportunity ever. Despite the reduced debt servicing costs, the country’s rating kept declining, thereby slowing down the economy; the government’s inability to capture various upturns into the economic cycle left room, to Italy’s assumed allies and opponents alike, for the development of insane appetites.

The analysis may last forever but this isn’t the goal of this article. Instead, the interesting issue is to frame how can the country resurge through a self-governed “Marshall Plan“, that addresses form the head Italy’s one and unique problem: public debt magnitude and long-dated budget mismanagement

An autarchic “Marshall Plan”

Italy doesn’t require, once and for all, external Wisemen dictating what to do and what not; the country itself has the technological, financial, medical and moral resources to address the country’s restructuring. Not very different from a corporate case, a country needs a comprehensive plan that addresses efficiency and effectiveness alike to rebalance a country’s weak financial performances. In Italy’s case, the Plan ought to leverage the country’s paradox: a very sound industrial base, robust families’ financial position and disastrous management of public finances. Italy needs a real U-turn, not a cure…..the country’s restructuring needs to be tackled through unique measures for the very unique case.

Politicians should be banned from running businesses; instead, they would focus on addressing the investments required to nurture, protect and re-establish the country’s goodwill: Italy’s branding, education, scientific R&D, heritage and the Italian language (and citizenship). Thus, a dramatic, yet trust restoring, action plan should focus upon 5 pillars:

  1. Massive Asset Debt Swap.
  2. Fiscal Big Bang.
  3. Government’s IP Agencies.
  4. National Pride (Language & Citizenship)
  5. Reform of Banking Sector & Financial Services industry.

1. Massive Asset Debt Swap

Italian politicians have long proven to be the worst managers (and increasingly so).

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Hence, politicians should be prevented from running businesses of public interest: the management of public interests’ assets has to be provided by professional managers (i.e. execution), whereby ruling politicians are supposed to set strategic guidelines (thus, planning). If this were the case, public debt management would be the combination of several coordinated actions addressing (i) the reduction of the debt stock and (ii) avoidance of new debt to cover operating losses from the poor management of public services. These actions can be summarized in three sequential steps

  1. Assets Segregation. The first step is to segregate State-owned assets into “vertical” National Champions, i.e. private holding companies run by independent competent governing bodies, whose incorporation capital would be represented by A shares, issued in favor of all assets contributors (including but not limìted to the State and the regional entities. Safeguard of the inherent political stances would be granted to the Government in charge via golden-share like arrangements – i.e. appropriate board representation and veto powers on selected matters (such as asset disposals, mergers, etc,,,)
  2. Professional Management. The second is to appoint a professional management team – not dissimilar to what would be the case in a hedge fund manager – save the idea that the majority of the managers (individuals or organizations) may be construed in such a manner to represent domestic beneficial ownership
  3. Access to Capital Markets The third is to launch a series of exchangeable tender offers – one for each National Champion – for outstanding BTPs and BOTs to be swapped into B shares of that specific National Champion. B shares will act as preferred shares and behave like a bond with a participating coupon linked to the economic performance of the underlying assets

If the assets (real or investments) that can be grouped into National Champions in preparation of the various asset debt swaps are not enough to bring public indebtedness down to the sustainable level, Government paper would be reimbursed by selling tax credits against future local duties, income taxes and, maybe, VAT

The end result of this process would be:

  • the creation of one of the widest market for securitized notes representing the nation’s real wealth
  • the halving or more of Italy’s public debt
  • the reconstitution of a healthy market for savings, giving investors access to an investible universe producing real returns from real assets, with upside potential due to enhanced performances via professional management.

2. Fiscal Big Bang

A disruptive fiscal perspective should bring innovation at the center of the country’s fiscal policy to make it the best place to earn one’s living. Fiscal Big Bang can be an impressive game-changer, as it’s best fitted to import whatever it may from concurring digital transformation best practices to address three highly sensitive issues: accountability, sustainability & social responsibility

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  • Revise the scope. Fiscal legislation has to be projected to support investments and social transfers which would procure externalities, social responsibility and effectiveness (not just to cover running losses incurred by state-owned inefficient entities)
  • Reduce budget. The sharpest way to reduce fiscal budget is trough the combination of (i) reduction of debt servicing (hence, the proposed asset debt swap) and (i) downsizing of State0s direct intervention in the management of on-going services (e.g. health care, education, etc.), under the assumption that better-managed services are more likely to produce positive cash flows (as opposed to today’s largely negative)
  • Increase social transfers. As some fundamental services (e.g. health care, education), would be priced at market rates in order to make them economically viable and fully sustainable, the budget will have to account for some increase in transfers in favor of those that wouldn’t access those services as they simply can’t’ pay for it. For the sake of clarity: medical care or education can’t be world-class unless they can enjoy an appropriate capital budget and attract/compete for the best talents. Even essential services should be priced at market rates; if this were the case, the government’s role wouldn’t be to deliver vital services at below-cost prices (eventually, the risk is CHEAP FOR NOTHING) but to grant access to those that deserve support (for meritocracy, humanitarianism and whatever other sensible reason) and cannot just afford.
  • Empower Taxpayers to impact on Fiscal Budget allocation: taxpayers should have the option to address some significant portion (up to anything between 50% and75%) of their tax charges to the public beneficiaries (ministries, local councils, Government agencies – see below) of their choice; beneficiaries will compete for those flows by publishing annually three mandatory informative packages:(i) action plan, (ii) budget and (iii) activity reports, providing full accountability on financial information and degree of implementation of ESG strategies
  • Redefine redistribution paradigm: active redistribution can be pursued neither by progressive income taxation (eventually, it may descourage innovation and hard-working) nor by penalizing the millionaires & billionaires (which are certainly among each country’s sheerest assets and certainly lured by anyone and essentially world citizens). Instead – for this suggestion, I thank my iconoclastic friend Charlie (still producing music in London, despite Brexit) – the idea is progressive taxation on yearly net savings (after consumption and investments on new assets of any type. i.e.: tangible, intangible or financial)
  • Celebrate a fiscal amnesty. Domestic residents (individuals and corporates) in aggregate have enough resources to pay for a non-recourse and ultimate Pax fiscale – i.e. remission/amnesty – once and forever; to win a sincere a long-lasting cooperation it is necessary to clear past skeletons and restore reciprocal trust between the citizens and the government
  • Improve social security coverage. the promotion of tokenized vouchering for occasional/minor jobs should improve social security system performances (in terms of inflow of resources and covered population) without penalizing the businesses by further increasing social charges (already barely affordable)
  • Issue Tax Bonds. Discount future taxes. Future tax inflows can be actualized into tradeable Tax bonds, whose coupon and principle can be redeemed against future tax charges
  • Introduce Lira Italiana, the nation’s crypto. Such a change of perspective needs a certain degree of monetary autonomy. The nation’s cryptocurrency is not planned to circumvent the country’s obligations nor weaken the lies with the European partners; instead, it would foster am healthy and bonding sentiment of belonging as well as facilitate the reemergence of black job markets. Italian lira would be issued by the Ministry of Finance and/or INPS (the social security system) under the joint supervision of Bank of Itay and Consob; it shouldn’t necessarily be a stable coin, certainly tradable on the major exchanges (crypto and/or MIFID-compliant) and fully convertible into Euro. However, the intrinsic security package (and conversion option of last resort) is a combination of (i) access to public services and services rendered by State Agencies; (ii) compensation of state and local taxes and (iii) payment of social security contributions (mandatory or voluntary)

3. IP’s Government Agencies

Government economic intervention should focus on igniting and developing externalities, with specific guidelines addressing the country’s well-renown excellence as well as targeting some selective strategic repositioning. The agencies would act very similarly to Foundations, with governing bodies representing political stances and technical expertise. The initial endowment capital would be State-granted; subsequent contributors will come from (i) unallocated state fiscal budget; taxpayers’ allocation of their discretionary portion of yearly tax returns, (ii); (iii) subscription of Impact bonds, (iv) proceeds from IP exploitation and rendered services and (v) miscellanea.

Learning from the market for white certificates (since inception aimed at supporting the development of virtuous attitude with respect to energy efficiency and mitigation of carbon pollution), State agencies ought to develop their specialized markets to trade measured externalities, thereby incentivizing domestic innovators to ride the curve and compete for global leadership in world sensitive matters

The first and foremost intervention is restoring the country’s reputation. Italy has to be treated as a Brand and Made in Italy should be the trademark and the claim, witnessing an identity and a lifestyle. It would be an attitude and a purpose, more than products or services. As a trademark, the very denomination “Made in Italy” or anything equivalent, should earn the country a penny….. every time someone uses it

Other relevant areas of externalities management best suited to be led by Government Agencies are:

  • Research. R&D & University hospitals
  • Education
  • Environmental Issues

4. National Pride (Language & Citizenship)

In western civilization, all big empires – starting with the Romans until the US supremacy since the aftermath of World War II – imposed their language as the one weapon to facilitate integration and biodiversity management. Language operates like an emotional air carrier: fosters a sense of community, the hope of inclusion and alignment of behaviors. It makes all neither on the same page nor on the same foot; yet, it gives the perspective that it may happen.

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The combination of Language with genetics create social unity and feel of being a nation. Italy’s ruling class has too long mingled in tactics and politicking, surfing through corruption, concussion, capital exportation, tax evasion…..private wealth and public indebtedness…..alongside the most brilliant researchers and entrepreneurs and the most closed-minded and short-sighted financial industry, Italy’s has fared in troubled waters for way too long.

The revival of the Nation’s pride can be fostered through two noteworthy actions: (i) the promotion of Italian culture and heritage (leveraging on the Italian language) and (ii), the offer for double citizenship to second and third-generation Italians living abroad.

5. Reform of Banking Sector & Financial Services Industry

Italy enjoys one of the largest per capita saving stock (and better distributed compared to the world economic superpowers); it is a mystery why such a wealth platform hasn’t allowed the country to develop a world-class banking & financial services industry. The weakest sector is asset management as the portion of savings captured by independent asset management is wilfully and guiltily negligible. Even more striking, the industry – instead of strengthening the domestic industrial base and help supporting private local champions – operates instead, in the glorious name of diversification, as an extremely effective conduit to export domestic capital towards international asset managers. In turn, they mostly support international corporates to expand globally (sometimes even buying Italian companies, eventually to be relocated beyond the Alps). Hence, one may infer that some of Italy’s household savings are employed to fund M&A strategies pursued by foreign corporates that create domestic unemployment !!

Fintech disruption and regulatory addresses call for the Era of Omnifinance (i.e. most real assets would be available for purchase – via fragmentation of ownership and/or attributable cash flows – under a wide variety of technical structures: MIFIF compliant stocks, bonds, structured notes and derivatives; unregulated investment instruments; tokens of any types). Eventually, the enlarged investible universe will benefit from secondary liquidity provided via MIFID compliant trading venues and/or international crypto exchanges

The gigantic asset debt swap above may allow Italy to create one of the largest and soundest capital markets circuits worldwide and reposition a handful of domestic financial institutions on the global radar screens: real assets in the magnitude of anything between 1,5 – 2,5 trillion, carrying little if no leverage, may meet with an equivalent amount of domestic (and international) savings. Public indebtedness would shrink by the same amount and households’ savings would start to be treated as Italy’s most versatile and fungible strategic asset.

Similar to London’s Big Bank (1987), the State intrinsic support to the consolidation of a few domestic financial powerhouses would help nurture a fertile environment for a number of smaller yet innovative independent players (assets managers, buy-side researchers, investment advisors, capital markets boutiques, lending platforms, crowdfunding platforms, etc…) to develop and, eventually, compete also beyond the country’s borders. Conversely, large scale banks would diminish their exposure to corporate lending (as capital markest would increasingly compete against – and eventually overwhelm – credit markets) and turn into large asset managers Blackstone-style. Retail national banks would stop milking their clients and start working in favor of the users

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