Stories have recently started appearing in the media that Italy, the third biggest economy in the Eurozone, has successfully passed initial proposals to create a currency alternative to the Euro, it’s current currency of choice. During last year’s elections, the ruling coalition ran on a platform of policies that toyed with the idea of returning to the Lira, Italy’s pre-euro currency, in an attempt to regain monetary control from the European Central Bank. A recent parliamentary motion has invited the Italian government to consider issuing small denomination bonds to speed up the settlement of debts owed to commercial business.
Having said that, the coverage I have read indicates that these ‘proposals’ are just that – suggestions intended to present an option to lawmakers, rather than an actual legislative motion. In addition to this, it’s also worth saying that these securities (to be called Mini-Bills of Treasury or mini-BOTS) will still be bonds, not an actual currency but various commentators have speculated over whether this is a prelude to a step away from use of the Euro.
An article from Reuters explains that the Italian Treasury will print several billion euros of ‘non-interest bearing securities’ which could be used by recipients to pay taxes and buy services provided by the government. One government minister has described the policy as ‘creating parallel liquidity’ to stimulate the economy but to me it sounds an awful lot like more Quantitative Easing. Why pay back your debts when you can simply print cash?
Of course, alongside the increase in Italy’s eye-watering national debt, the other glaring issue is that this ‘alternative’ method of payment will essentially be a new currency alternative to the euro and a creation that is strictly prohibited by the ECB.
I have to question the sensibilities of those pushing towards a return to the Lira (or another Italian-run currency). For sure, it would provide distance and protection from what many Italians describe as the ‘tyranny’ of the ECB but in reality, this move seems to reinforce the debt-addicted stereotype of many southern European countries. Indeed Italy has repeatedly put up two fingers to the ECB by openly flouting rules regarding debt-to-GDP regulations (which stipulate a maximum of 60% – Italy is currently say at more than double this limit). In addition to this, their deficit is expected to rise from 2.1% of GDP in 2018 to 2.4% in 2019 (indicating no real intention of getting this under control)
In response to this flagrant inability (or unwillingness) to reign in debt, the European Central Bank has the power to fine Italy up to 3.5bn euros, withdraw loans from the European Investment Bank and more closely monitor existing debts. So for all of the great triumph and hard work that was put into joining the Euro, Italy might as well have stayed on the Lira – they’re certainly still managing their finances as though they were.