The Italians Plans For Leaving The Euro…Or That This Blows Up

The EMU has not had the desired unifying impactThe EMU has not had the desired unifying impact

If I haven’t got the wrong end of the stick, the Italian government would be planning to create a guaranteed parallel currency, but which I don’t know who will control. A Bank of Italy? The government would issue these BOT, endorse them with the Bank of Italy, which would give it the money to be shared out amongst the unpaid creditors. It seems a lot like Helicopter Money. But there’s a problem here of a lack of (mis) trust which the government and the central bank has to win back. And this is where they have almost always failed.

Then there is the problem of the debt in euros. The new currency will devalue which is what, I suppose, will put Germany “under pressure” to accept a debt renegotiation. In other words, I unilaterally break up my debts, I denominate them in a new currency, so that if you don’t want this to devalue a lot and devalue what I owe you, better to renegotiate an aquittance of the debt. It’s the only way I understand it. Now, it’s madness to believe that this is not going to end very badly. Because the other creditor countries, on the one hand, and the debtor countries, on the other, will react. And there are no reasons to think that it will be Versailles-like. I agree that the only – or almost only – solution for Europe is a debt negotiation, since it’s unsustainable for Europe to be a trench between debtors and creditors. But unilaterally, and being blackmailed, I don’t believe the creditor countries, on the point of being assaulted by anti-Europe populist parties – but with opposite motives from those in the South: they are not extreme right for nothing – are going to swallow such a challenge. No. No, I don’t think so. But on the other hand, what this mad plan will achieve is to make everyone angry and the whole thing will blow up…and we end up being closer to another war. I don’t believe Italy will follow through to the end with this madness.

Madness? Well, the truth is that the euro has become indigestible for Italy. From the post war period, the country has played a more or less maverick game of high debt (for political reasons: the political factor is always forgotten in the equation. Would Italy have been able to contain the mafia without this money game?) and the lira in a downward trend. A renaissance monarch who curtailed its currency to go on paying that debt. And it all went more or less well for Italy, until the euro came along and GDP per capita looked grim, as we can see in the graphic:

While the lira (the blue line, devalued regularly – rise in the line), GDP (the green line) moved at a fair pace. When the euro arrived in 2000, GDP languished, became chronically sick and remained in the doldrums. Now Italy is the only country which has not recovered the pre-2008 crisis level. Politicians like Berlusconi want to get back that capacity for manipulating the currency and “devalue the debt” at the same time, issuing it in a currency controlled by the central bank. Simply that. Nothing more. Ok, and so what? It’s an Italian tradition. And the euro works in favour of German traditions, and against those of other countries. Do you understand what I’m getting at?


About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://