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Italy’s dual currency schemes may be long road to euro exit

Italy’s main opposition parties are replacing their calls to leave the euro with apparently less radical proposals to flank it with a new currency they say can boost growth and jobs.

Yet if any of their schemes are adopted with success they may convince many Italians that the economy can function without the euro and make an eventual euro exit more likely.

It is a big if: previous such plans have been tried around the world with mixed results and it would take a political shift for new ones to be introduced in Italy, but not everyone is ruling it out.

“It can be done, technically and politically it is perfectly possible,” said Roberto Perotti, economics professor at Milan’s Bocconi University.

Three of Italy’s four largest parties – the anti-establishment 5-Star Movement, the right-wing Northern League and Silvio Berlusconi’s Forza Italia – propose introducing a parallel currency after an election due early next year. They have settled on the dual currency proposal as a way of continuing to tap into widespread anti-euro sentiment in Italy while avoiding – at least for now – the huge upheaval and market turmoil that outright euro exit may trigger.

Opinion polls currently point to a hung parliament in which they could get a majority of seats but would be unlikely to form a government due to divisions on other issues.

It can be done, technically and politically it is perfectly possible

Some Northern League and 5-Star lawmakers say their primary goal is to persuade Brussels and Italy’s partners to change European fiscal rules to allow them to spend more and cut taxes. The threat of a parallel currency, which is opposed by the European Commission, can help them achieve this, they say.

However, many of the strongest supporters of the scheme are anti-euro and they admit one of its main aims would be to prepare the ground for a euro exit when the time comes.

“With a parallel currency in place, if we want to leave the euro our economy will still be able to operate even if the ECB tries to crush us by shutting off liquidity in euros,” said the Northern League’s economics spokesman Claudio Borghi.

Italians were strongly pro-euro when the single currency was launched in 1999 but, since then, Italy has been the most sluggish eurozone economy and many blame the euro for their falling living standards and high unemployment.

A poll by the Winpoll agency in March showed only around half of Italians back the euro and an EU-wide survey in July by the German Bertelsmann Stiftung think tank showed just 17 per cent of Italians said they were satisfied with the direction of the EU, half the EU-average.

The European Commission is concerned by the dual currency talk and so are financial markets.

Investors sold off Italian government bonds last month after Berlusconi said he was in favour of printing a “new lira” for domestic use, to pump money into the economy. Under his plan, euros would still be used for all international transactions and by tourists.

The four-times prime minister had made the proposal before but markets are now particularly edgy ahead of an election where only the ruling Democratic Party (PD) does not propose to tinker with the current euro set-up.

The PD is running neck-and-neck with 5-Star, with rightist allies the Northern League and Forza Italia in third and fourth place.

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