Shopping for tailor-made Italian reforms with the ECB credit card

The letter sent by ECB President Trichet and his successor (and current head of the Bank of Italy) Draghi to the Berlusconi government calling for reforms in return for a resumption of bond purchases by the central bank has been made public.

It starts with “At the current juncture, we consider the following measures as essential” and ends with “We trust that the [Italian] Government will take all the appropriate actions.” In between is a neo-liberal policy wish-list.

The ECB never tires of insisting on its independence and political neutrality, underlines that its considerable power is tied to the fact that monetary policy is a technical matter and that it has, and can have, only one needle in its compass, namely price stability. At the same time it insists, away from democratic scrutiny,  on a very specific shopping list of reforms in return for its willingness to save a sovereign eurozone member country (however ill-governed) from the threat of a spiral into default by buying its bonds and thus deterring speculators.

This is clearly not covered by the ECB mandate, particularly as it itself has in the past chosen to interpret it. It is clearly at odds with the unconditionality with which it has pumped money into financial institutions. And the measures called for (e.g. the “full liberalisation of local public services” or “reform the collective wage bargaining system allowing firm-level agreements to tailor wages and working conditions to firms’ specific needs”) are highly controversial, a massive interference in the democratic decision-making process in Italy, and not immediately relevant either to the issue of sovereign debt or to the maintenance of price stability.

This is a real scandal, although whether it will be treated as such is another question entirely.