Commentary Euro

Italy vehiculates idea of alternative to euro

Faced with a stiff, EUR 3.5 billion reduction in EU funding if it doesn’t reign in its budget deficit, the Italian Five Star-League coalition government has raised the possibility of using an alternative currency to the euro, Magyar Nemzet reports.

While the previous government planned a budget deficit of just 0.9 percent of GDP for this year, the new government has in three steps increased it to 2.4 percent, saying that it can only redress the economy this way.

In response, the European Commission is threatening to withhold an annual EUR 3.5 billion in EU funding. After Greece, Italy has the highest public debt in the EU, standing at EUR 2,300 billion or 132.2 percent of its GDP at the end of 2018, which the Commission forecasts will rise to 133.7 percent by the end of this year and 135.2 percent by 2020.

The plan of the Italian government isn’t exactly a currency as such, but small-denomination treasury bills with no fixed expiry and no interest.

One Dutch analyst said that the introduction of such an alternative could wreak havoc within the Eurozone and threatens to undermine the savings in euros of tens of millions of people, thus no responsible government could seriously consider the idea.

On the other hand, Bundesbank analysts say that the mere blackmail potential of the idea – given the size and importance of Italy within the Eurozone – is huge.

Title image: Italians at an ATM during carnival  season (Reuters)

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