Home » Economy » Paralel currency – Italy's «new lira» could pave way for euro exit | News

Paralel currency – Italy's «new lira» could pave way for euro exit | News

Wednesday, September 13th, 2017 | Economy

The European-critical "five-star" movement, the right-wing Lega Nord and the party Forza Italia of former Prime Minister Silvio Berlusconi demand this. They all expect a stronger economic growth. If it were successful, this experiment could be an entry into Italy's exit from the Eurozone.
"It is possible – both technically and politically", emphasizes economics professor Roberto Perotti from the Bocconi University in Milan. The supporters of a second currency point to the high acceptance of the food vouchers distributed by Italian employers. Millions of Italians used them not only for lunch lunch, but also for grocery shopping. Berlusconi refers to the "AM-Lira", which was issued by the Allies during the second world war. Another model is the Swiss franc, introduced in 1934, in Switzerland. With the help of this, companies can take out favorable loans there.
Parallel currency with risks
However, the introduction of a parallel currency in Italy also carries risks, warns Professor Perotti. "It would increase public debt, Brussels would raise objections and – especially in the case of a large-scale introduction – would increase the likelihood that we would be forced out of the Eurozone." The supporters admitted that a parallel currency would increase the Italian debt mountain – the second highest in the euro zone after the Greek. The faster economic growth, however, weighs more than this.
"However charming the idea of ​​limited national currency sovereignty may sound, it has failed regularly on the decisive question, namely, how the countries concerned are to generate their euro-denominated foreign debt," warns Martin Lück, chief investigator for Germany, Austria and Eastern Europe with the world's largest asset manager, Blackrock. Without a clear response from the ECB and the EU Commission, stock exchanges threatened new "italexite" speculations. When, at the end of August, Berlusconi signaled sympathy for the idea of ​​a second currency, investors threw high-yield bonds from their depots.
Mini bonds as new money?
According to the plans of Claudio Borghi, the economic-political spokesman of the Lega Nord, non-interest-bearing bonds are to be issued in small denominations. With these securities, which are based on already existing short-term bonds, "Mini-BOTs", the state is to pay for goods and services, or to refund tax refunds to citizens. They could then pay taxes or settle their bill at the petrol stations of the state oil company Eni. According to Borghi, Italy had to prepare for the collapse of the euro with the introduction of this second currency, which from his point of view is only a matter of time.
Gennaro Zezza, the economics professor, has also suggested that the introduction of a "fiscal currency" should be a good idea. With this initially purely electronic money the state salaries of its employees and investments should pay. Within one year, bills could be printed and coins stamped. Zeza's plans are supported by the "five-star" movement. In both cases foreign trade would continue to be billed in euros and Italian tourists could also use the usual coins and bills.
The EU and international financial investors, however, are preparing headaches for these ideas. ECB boss Mario Draghi emphasized that no country in the euro zone could introduce its own currency. The EU Commission points out that there is only one legal means of payment in the common currency area. According to experts, however, there is a loophole: by law, a means of payment is when sellers are forced to accept it. "Without a commitment, there are no legal problems," stresses Daniel Gros, head of the Brussels Center for European Policy Studies. However, the discussion centers on the real problem of Italy: the lack of productivity growth.
Weakening "Euro-phorie" in Italy
With their considerations, the advocates of a parallel currency hit a nerve. In 1999, a large majority of the Italians still welcomed the Community currency. According to surveys, however, approval has since fallen to about 50 percent. Many Italians make the euro responsible for their lower standard of living and high unemployment. According to an investigation by the Bertelsmann Foundation, only 17 per cent of Italians are satisfied with the current development of the European community – just half as much as the EU average. Lega Nordmann Borghi wants to make use of this and to vote on the design of the "mini-BOTs" via Twitter and Facebook.
In the spring of 2018 the Italian Parliament will be re-elected. Demoscopes reckon with a head-to-head race of the ruling PD with the "five-star" movement. Lega Nord and Forza Italia are behind. To some politicians of these parties, the parallel monetary plan is mainly used as a means of exerting pressure on the EU to relax the budgetary rules. They want to finance additional expenditure on debt and reduce taxes to stimulate the economy.
(Reuters)

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