Used to say Italy should leave the euro, sadly, no longer seem to

The new Italian government is preparing something more than just a small explosion under the foundations of the Euro. Sadly, to my taste, it’s not large enough, for they seem to have ruled out actually leaving the currency. Italy leaving the euro being the one thing which would, after a certain amount of chaos to be sure, substantially benefit the Italian economy. Oh, and yes, not to be forgotten, kill off that misbegotten child of Brussels fantasies, the euro itself. Something we should all devoutly wish for, that death, as it’s by a long way the most absurd and damaging economic policy inflicted upon Europe since state socialism circled the u-bend.

This is a good start:

A leaked draft of the programme under discussion between the Five Star Movement (M5S) and the League has revealed some of their most radical plans for Italy, including potentially exiting the euro, scrapping sanctions on Russia and asking the EU to forgive massive Italian debts.

Sadly they seem to have walked back on that plan to leave the euro. The draft is here, in Italian.

They will also demand something which is really quite fun:

The joint document will demand the ECB forgives Italy of €250 billion Italian benchmark BTP bonds bought under the bank’s so-called “quantitative easing” programme to help reduce Italy’s public debt. Italy’s debt mountain totals more than 130 percent of national output is the highest in the Eurozone after Greece’s.

The amusement here being that there are those who insist that QE will never be unwound. The Senior Lecturer at Islington Technical College, for example, insists that the central bank holing such government debt means that it is already cancelled. So, official cancellation makes no difference, why not do it? One reason why not to do it is that the Germans will go absolutely spare of course.

For what that would be is monetisation of the debt. Something which the Bundesbank is resolutely against and for good historical reason. Germany did suffer a massive hyperinflation in the 1920s an it’s something that hasn’t yet left the collective psyche.

It’s also going to be interesting seeing some of the contortions that people will go through. For this is – arguably at least – a useful way forward:

Analysts are concerned that big spending plans by 5-Star and the far-right League, who are negotiating to form a coalition, will push up Italy’s debt, which at more than 130 percent of national output is already the highest in the euro zone after Greece’s.

“The recipe for lowering the debt is through investments and expansionary policies,” Di Maio told reporters in parliament.

We will note the similarity between that and certain domestic cries here in Britain, won’t we? Stop the austerity and spend, spend, spend, to expand the economy. This won’t work here in the UK of course as we’re already at record low levels (since 1971 anyway) of unemployment and it’s entirely unobvious that a larger deficit, more government spending, will increase economic growth rather than just push inflation up. The arguments in favour in Italy are rather stronger by those conventional Keynesian theories.

However, by and large you understand, those who favour that particular perversion of macroeconomics are also those who favour the European Union. And the EU is entirely insistent that Italy shouldn’t be allowed to – indeed isn’t allowed to on pain of fines – to do such a domestic expansion. Gross debt must be falling, budget deficits are to be controlled and so on. This is all part and parcel of the rules of the euro. To go it alone in such a manner would be to break those euro membership rules.

Which is going to produce the odd contortion, isn’t it? Those who like both the euro and Keynes face the problem of which to support.

Huffington Post Italia late Tuesday leaked a proposal by the antiestablishment Five Star Movement and the far-right League — populist parties that came out on top in an inconclusive March election — outlining a plan to ask the European Central Bank for a writedown.

It won’t happen for QE isn’t really the issue here anyway. What is is that such an action would mean the other eurozone governments would be paying for past Italian spending. That’s not going to fly.

The mechanism is that yes, the ECB has simply printed money on its computers and used it to buy Italian government debt. When it’s sold, that debt, then the money will be fed back into the computers and vanish. That’s how QE works. Ah, but, the profits of the ECB are sent off to the national governments which own it. A €250 billion write off is still a €250 billion write off, meaning €250 billion of profits which won’t be sent to national governments. Those other eurozone governments will just have paid that €250 billion of past Italian government spending.

This isn’t, to put it mildly, going to happen.

I’ve long insisted that the solution to Italy’s woes is to leave the euro. Beppe Grillo even used to agree. Sadly, that idea now seems to have gone by the wayside.

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Hallowed Be
Hallowed Be

Nice verbiage. Essere o non essere. Das is der die Frage

You note leaving the Euro has been ruled out, and you also rule out the debt being forgiven. I see a threat and price. We’re about to go into a period of price discovery.

bloke in spain
bloke in spain

For those of us who’s personal economics span both the GBP & the €, it’d be interesting to hear views on the implications of some possible scenarios.
1) Italy stays in the € but Brussels has to break the rules to accommodate.
2) Italy bails out of the €
3)The mooted split into Northern & Southern Euros. Possible?
4) € collapse
Does 4 necessarily follow 2?


From the competing currencies of Hong Kong to modern cryptocurrencies, the only reason nations issue currencies is to be able to very gradually steal all the value that citizens put into them. The thieves of the EU are now at odds with the more aggressive thieves of Italy, but the terms of the settlement involve more government debt that is fake because no one intends to ever repay it. As some Trump voters on my street put it in 2016: “Burn it down!”

Rhoda Klapp
Rhoda Klapp

Italy is bluffing. The can can be kicked down the road indefinitely, and it will be.

Quentin Vole
Quentin Vole

True, Rhoda. But kicking it down the road costs the Germans hundreds of billions a time. At some point the voters will notice (even though they’re the main beneficiaries of the euro).