The Economist - USA (2021-02-20)

10 Leaders The EconomistFebruary 20th 2021

1

I

t is easyto mock spacs. For decades these “special purpose ac-

quisition vehicles”, publicly listed pots of capital raised by in-

vestors who seek out private firms to merge with, have ushered a

small number of flaky and irrelevant companies onto public

markets. The present spac boom on Wall Street began last year

and, true to form, features celebrities-on-the-make, failed

bosses looking for redemption and credulous investors keeping

their eyes wide shut. Yet it is undeniable that something more

serious is also now taking place. The amount of money raised by

spacs in the past 12 months has soared to over $120bn, according

to Bloomberg. In a few weeks this year as much has been raised as

in the first half of 2020. The boom is spreading to Europe, and

Amsterdam is racing ahead of London as a favoured venue (see

Finance section). Serious companies are getting involved, too.

Two of Asia’s leading digital firms, Gojek and Tokopedia, are said

to be considering using a spacto list in New York, which would

be an alternative to a conventional initial public offering (ipo).

In an ipo a firm hires bankers who help it sell shares at an

agreed price to mainly institutional investors in an elaborate

process set out by regulators. The spac approach turns that on its

head. A group of investors float a shell company, giving it a pot of

cash. It then hunts for an unlisted target firm and offers to merge

Spactacular

spacs are a mania—and a useful way to take firms public

Capital-raising on Wall Street

I

taly is big enough to break Europe. Some countries, such as

Greece or Portugal, are highly indebted but their fellow Euro-

peans can bail them out, if necessary. Others, like France, Spain

or indeed Germany, have large debts in absolute terms, but

thanks to the size of their economies and a decent record of

growth they can cope without spooking the markets. Only Italy

has the triple whammy: a big debt stock in both relative and ab-

solute terms, plus an economy that was stagnant even before co-

vid-19 struck. The arrival of Mario Draghi, sworn in as Italy’s

prime minister on February 13th (see Europe section), offers

some hope that Europe’s sick man may get a vital healing shot.

Mr Draghi, an ex-boss of the European Central Bank, is the lat-

est in a long line of technocrats to be installed in the prime min-

ister’s office. That is hardly ideal. Unelected

heads of government are in principle a snub to

democracy. They are often bad at communicat-

ing with the public. Their elevation can play into

the hands of populists, who will always claim

that the elites are conspiring to do down the

masses. When the prime minister in question is

a former international banker, the demagogic

slogans practically write themselves.

Still, Mr Draghi commands the support of all Italy’s main par-

ties, with the sole exception of the Brothers of Italy, an outfit with

neo-fascist origins, which will no doubt snipe dangerously from

the sidelines. Mr Draghi is more than just a technocrat; he also

has considerable political and diplomatic skills, as he showed

when shepherding the euro through its crisis a decade ago. He

will need them.

Previous governments have often broadly agreed about what

has to be done to rescue Italy from its chronic malaise. It is one of

the worst places in the European Union in which to do business,

owing to a sluggish and erratic judicial system, a weakness for

red tape and a tax system that discourages job creation. Govern-

ment subsidies have failed to correct the deep structural imbal-

ance between the prosperous north and the mezzogiorno, Italy’s

south, one of Europe’s least prosperous regions. All these things

need fixing, but a series of weak, cash-strapped coalition govern-

ments have made little progress. Mr Draghi has a chance to do

better. For now, at least, he has a huge majority in parliament.

He will also have plenty of sugar to help the unpleasant medi-

cine go down. Thanks to a €750bn ($900bn) recovery fund that

the euagreed to last summer, Italy is eligible for around €200bn

in grants and loans over the next six years. The money comes

with the right kind of conditions attached. Much of it must be

spent on green projects or digital ones; and agreeing to a detailed

programme of reforms is a key part of the mix. Italy’s draft plan is

better than some that other member states have submitted to

Brussels. Even so, Mr Draghi needs to beef it up.

In a speech to parliament on February 17th he hit

the right notes, promising to reform taxes, the

courts and public administration, but also pro-

mising not to bail out unviable firms.

If Mr Draghi is a good bet for Italy, he looks a

good one for the euas well. The European Coun-

cil could use another heavyweight. Angela Mer-

kel is on her way out, having promised that her

current term as Germany’s chancellor is her last; an election is

due on September 26th. Emmanuel Macron faces his own re-

election battle early next year. Britain, in the past the swing vote

in Europe’s trio of dominant powers, has abandoned the stage.

A powerful and highly regarded Italian will also help shift the

eu’s ideological balance in the right direction. If it is to survive

and thrive, the bloc needs to invest a good deal more money, rais-

ing it on the international markets and so allowing its weaker

countries to benefit from the credit of the union as a whole. The

recovery fund offers a good template that should be used again in

the future; Mr Draghi will be well placed to press for that. This

can happen, though, only if the existing plan is a success. If Su-

per Mario cannot make it work for Italy, perhaps no one can. 7

Another chance

Mario Draghi’s appointment as prime minister is good for Italy and good for Europe

Italy