Title Title
Silvio_Berlusconi_EPP_2017_1 New government could bring ‘new lira’ to Italy
Summary Summary
  A eurosceptic coalition could win the highest number of votes at the Italian elections with plans to introduce a 'dual currency'.
Highlights Highlights
  Italian national elections are set for March 4 , Three of four main parties favor reintroducing lira currency , New lira would be ‘dual currency’ alongside euro  , Opinion is divided over outcome of the elections with hung parliament likely
Content Content
  <span style="font-weight: 400;">With the Italian public increasingly disenchanted with a languishing economy, as well as the euro, the country’s parliamentary election in March could lead to plans to the introduce a “new lira” as a parallel currency.</span>
  <span style="font-weight: 400;">Following Italian President Sergio Mattarella’s dissolution of parliament on December 28, 2017, Italians will </span><a href="https://en.wikipedia.org/wiki/Italian_general_election,_2018"><span style="font-weight: 400;">vote on March 4</span></a><span style="font-weight: 400;"> to elect representatives to both chambers of the country’s legislature.</span> <span style="font-weight: 400;">Ultimately, a new prime minister will assume office in an electoral landscape in which</span><a href="https://www.reuters.com/article/us-italy-euro-analysis/italys-dual-currency-schemes-may-be-long-road-to-euro-exit-idUSKCN1BJ20F"><span style="font-weight: 400;"> three of the four main parties in the polls favor introducing a dual currency</span></a><span style="font-weight: 400;">. </span>
  <span style="font-weight: 400;">With Matteo Renzi’s ruling Democratic Party struggling to secure allies (</span><a href="https://www.ft.com/content/970c42ae-f14a-11e7-b220-857e26d1aca4"><span style="font-weight: 400;">Financial Times</span></a><span style="font-weight: 400;">) in the face of “a bitterly divided left” (</span><a href="https://www.economist.com/news/europe/21733238-vote-will-be-held-march-introducing-new-uncertainty-europe-italy-heads-fresh"><span style="font-weight: 400;">Economist</span></a><span style="font-weight: 400;">), </span><a href="https://uk.reuters.com/article/uk-italy-election/italian-president-calls-for-realistic-proposals-ahead-of-election-idUKKBN1EP0LG"><span style="font-weight: 400;">analysts predict</span></a><span style="font-weight: 400;"> that a three-way coalition of former prime minister Silvio Berlusconi’s revived center-right </span><a href="https://en.wikipedia.org/wiki/Forza_Italia"><span style="font-weight: 400;">Forza Italia</span></a><span style="font-weight: 400;"> party, the regionalist </span><a href="https://en.wikipedia.org/wiki/Lega_Nord"><span style="font-weight: 400;">Northern League</span></a><span style="font-weight: 400;"> and the nationalist </span><a href="https://en.wikipedia.org/wiki/Brothers_of_Italy"><span style="font-weight: 400;">Brothers of Italy</span></a><span style="font-weight: 400;"> will win the most votes. </span>
  <span style="font-weight: 400;">Although currently leading all parties in the polls, the anti-coalition, populist Five Star Movement is likely to be kept out of power by other parties due</span><a href="https://www.wikitribune.com/story/2017/12/07/italy/italy-readies-for-first-national-general-elections-under-new-voting-scheme/20053/"><span style="font-weight: 400;"> a 2017 electoral law</span></a><span style="font-weight: 400;"> that critics argue </span><a href="https://www.reuters.com/article/us-italy-politics-election/italian-government-wins-all-five-confidence-votes-on-electoral-law-idUSKBN1CU1WO"><span style="font-weight: 400;">favors coalition forming</span></a><span style="font-weight: 400;">.</span>
  <span style="font-weight: 400;">Opinion polls predict that </span><a href="https://uk.reuters.com/article/uk-italy-election/italy-to-vote-on-march-4-with-hung-parliament-feared-idUKKBN1EM19L"><span style="font-weight: 400;">a hung parliament is the most likely outcome</span></a><span style="font-weight: 400;">.</span>
  <span style="font-weight: 400;">But some analysts anticipate a right-leaning coalition forming a government with a mandate to introduce a new, domestic-only currency to operate alongside the euro. </span>
  <span style="font-weight: 400;">This worries many eurozone leaders. In August 2017, after Berlusconi publicly indicated his support of printing a “</span><a href="https://www.reuters.com/article/us-italy-euro-analysis/italys-dual-currency-schemes-may-be-long-road-to-euro-exit-idUSKCN1BJ20F"><span style="font-weight: 400;">new lira</span></a><span style="font-weight: 400;">” for domestic use in Italy, the European Commission stated that the euro was the only legal currency in the eurozone.</span>
  <span style="font-weight: 400;">“There are no exceptions to this rule,” a Commision spokesman said (</span><a href="https://www.reuters.com/article/us-italy-currency-berlusconi-commission/eu-shoots-down-berlusconi-parallel-currency-proposal-idUSKCN1B32BP"><span style="font-weight: 400;">Reuters</span></a><span style="font-weight: 400;">).</span>
  <span style="font-weight: 400;">The proposed implementation of a </span><a href="https://uk.reuters.com/article/us-italy-euro-analysis/italys-dual-currency-schemes-may-be-long-road-to-euro-exit-idUKKCN1BJ20F"><span style="font-weight: 400;">“new lira”</span></a><span style="font-weight: 400;"> would leave the euro in use for all international transactions and would continue to be used by international tourists. </span>
  <span style="font-weight: 400;">Once among the eurozone’s most ardent supporters, Italians are now among its greatest skeptics, according to </span><a href="http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/Survey/getSurveyDetail/instruments/STANDARD/surveyKy/2143"><span style="font-weight: 400;">European Commission figures</span></a><span style="font-weight: 400;">.</span>
  <span style="font-weight: 400;">John Hooper, Italy correspondent for </span><i><span style="font-weight: 400;">The Economist</span></i><span style="font-weight: 400;">, told </span><i><span style="font-weight: 400;">WikiTribune</span></i><span style="font-weight: 400;"> that current levels of euroskepticism in Italy are “mainly because of the single currency.”</span>
  <span style="font-weight: 400;">“The introduction of the euro in Italy was accompanied by a big increase in prices, and particularly in the price of houses,” Hooper said. </span>
  <span style="font-weight: 400;">Many Italians blame the euro for a rise in living costs, lamenting that prices seem to have doubled overnight when the single currency was implemented in 2002 (</span><a href="https://www.ft.com/content/3d11a974-eab2-11e5-bb79-2303682345c8"><span style="font-weight: 400;">Financial Times</span></a><span style="font-weight: 400;">). The current rate of youth unemployment in Italy stands at 35 percent (</span><a href="https://www.statista.com/statistics/266228/youth-unemployment-rate-in-eu-countries/"><span style="font-weight: 400;">Statista</span></a><span style="font-weight: 400;">), among Europe’s worst. Though improving at its fastest rate since 2010, economic growth has been consistently sluggish since the 2008 global financial crisis (</span><a href="https://www.economist.com/blogs/economist-explains/2017/09/economist-explains-10"><span style="font-weight: 400;">Economist</span></a><span style="font-weight: 400;">), leading to widespread frustration and increasing levels of Italian emigration (</span><a href="https://www.ft.com/content/cb9bd2ee-c07d-11e7-9836-b25f8adaa111"><span style="font-weight: 400;">Financial Times</span></a><span style="font-weight: 400;">).</span>
&nbsp <h2><span style="font-weight: 400;">Euro losing support</span></h2>
  <span style="font-weight: 400;">General anti-euro sentiment is intensified by the design of Italy’s economy, author of “The Political Economy of Italy in the Euro” and King’s College of London economics professor Leila Talani told </span><i><span style="font-weight: 400;">WikiTribune</span></i><span style="font-weight: 400;">. </span>
  <span style="font-weight: 400;">“The Italian export-oriented manufacturing sector has lost out from a constantly overvalued currency and from the impossibility to adopt competitive devaluations as a competitive tool,” Talani said.</span>
  <span style="font-weight: 400;">“Given the constant positive inflation differentials with Germany, Italy has progressively lost around 25 percent competitiveness in the EU export market since the adoption of the euro.”</span>
  <span style="font-weight: 400;">Despite forecast improvements of the eurozone’s third-largest economy (</span><a href="https://www.reuters.com/article/us-italy-economy-confindustria/italy-employers-raise-gdp-growth-forecasts-government-to-follow-idUSKCN1BP1G6"><span style="font-weight: 400;">Reuters</span></a><span style="font-weight: 400;">), Italy’s slow growth is already putting pressure on the euro. Italian public debt currently stands at 132 percent of GDP, the eurozone’s largest debt after Greece. </span>
  The Greek economy remains reliant on its creditors, notably Germany, and many economists believe it will never manage to escape its public debt without “significant forgiveness from its investors,” <a href="https://www.politico.eu/article/why-greece-is-germanys-de-facto-colony/">according to Politico</a>.
  <span style="font-weight: 400;">“What happened to Greece has frightened many Italians who fear their country could one day go the same way,” Hooper said. </span>
  <span style="font-weight: 400;">“I think there has also been a deeper and more valid reason for skepticism about the euro, which is a growing feeling that the single currency was framed in such a way as to benefit Germany, and that the countries of the south will suffer as a result.”</span>
  <h2><span style="font-weight: 400;">Impact of ‘new lira’ would be massive</span></h2>
  <span style="font-weight: 400;">With the Northern League and Berlusconi’s Forza Italia both polling at about 15 percent, and Berlusconi banned from standing for office following a 2013 tax fraud conviction (</span><a href="http://www.bbc.co.uk/news/world-europe-12403119"><span style="font-weight: 400;">BBC</span></a><span style="font-weight: 400;">), the prospect of a Salvini-led coalition is possible.</span>
  <span style="font-weight: 400;">Salvini has said in the past that “we need a strong country that is not subordinate to Europe. With its own currency, for example.” (</span><a href="https://www.washingtonpost.com/news/worldviews/wp/2016/12/03/a-far-right-italian-leader-wants-to-take-a-trump-upset-to-italy-on-sunday/?utm_term=.6c8089a7e4c9"><span style="font-weight: 400;">Washington Post</span></a><span style="font-weight: 400;">). </span>
  <span style="font-weight: 400;">Berlusconi said in an interview with Italian newspaper </span><i><span style="font-weight: 400;">Libero Quotidiano</span></i><span style="font-weight: 400;"> that a parallel currency would help Italy regain “monetary sovereignty in a way that supports domestic demand.” (</span><a href="https://ftalphaville.ft.com/2017/08/21/2192571/parallel-currency-talk-gains-ground-in-italy/"><span style="font-weight: 400;">Financial Times</span></a><span style="font-weight: 400;">)</span>
  <span style="font-weight: 400;">However, Roberto Perotti, an economics professor at Milan’s Bocconi University, told </span><a href="https://uk.reuters.com/article/us-italy-euro-analysis/italys-dual-currency-schemes-may-be-long-road-to-euro-exit-idUKKCN1BJ20F"><span style="font-weight: 400;">Reuters</span></a><span style="font-weight: 400;"> that while “technically and politically” possible, the impact of a dual currency would be severe. </span>
  <span style="font-weight: 400;">“It would increase public debt, Brussels would object and especially if done on a large scale it would make it more likely we are eventually forced out of the eurozone,” he said.</span>
  <span style="font-weight: 400;">Forza Italia’s August 2017 announcement of its support of the proposed domestic currency </span><a href="https://uk.reuters.com/article/us-italy-euro-analysis/italys-dual-currency-schemes-may-be-long-road-to-euro-exit-idUKKCN1BJ20F"><span style="font-weight: 400;">sparked investors to sell off Italian government bonds</span></a><span style="font-weight: 400;">. </span>
  <span style="font-weight: 400;">While dual-currency rhetoric from opposition parties has replaced more radical calls for Italy to leave the euro altogether, the potential reintroduction of the lira could be a </span><a href="https://uk.reuters.com/article/us-italy-euro-analysis/italys-dual-currency-schemes-may-be-long-road-to-euro-exit-idUKKCN1BJ20F"><span style="font-weight: 400;">“long road to euro exit.”</span></a>
  <span style="font-weight: 400;">However unlikely, an eventual Italian break from the EU could be disastrous for the eurozone.</span>
  <span style="font-weight: 400;">“A breakup of the EU—and Italy's pulling out would mean just that—would be a geopolitical disaster,” </span><a href="https://www.forbes.com/sites/steveforbes/2017/01/03/dont-be-misled-by-brexit-if-italy-leaves-the-eu-the-fallout-will-be-awful/#2012caa258dc"><span style="font-weight: 400;">wrote Steve Forbes in a 2017 </span><i><span style="font-weight: 400;">Forbes</span></i><span style="font-weight: 400;"> story</span></a><span style="font-weight: 400;">.</span>
  <h2><span style="font-weight: 400;">Political rhetoric may not translate into action</span></h2>
  <span style="font-weight: 400;">The introduction of a new currency in Italy is anything but certain.</span>
  <span style="font-weight: 400;">Italy’s political parties “will never introduce a domestic currency for parallel use,” Talani said. “They are just saying it now to win the election.”</span>
  <span style="font-weight: 400;">“It seems to me that a lot of Italian politicians want to capitalize on the grumbling in Italy about the euro without actually committing themselves to leaving the euro, let alone the EU,” Hooper said. </span>
  <span style="font-weight: 400;">Even if a coalition of Forza Italia, the Northern League and Brothers of Italy succeeds, </span><span style="font-weight: 400;">there</span><span style="font-weight: 400;"> remain significant policy differences between Forza Italia and the Northern League and </span><a href="https://www.reuters.com/article/us-italy-politics/splits-on-italian-right-buoy-opponents-as-campaigning-starts-idUSKBN1E8209?il=0"><span style="font-weight: 400;">public disputes have erupted between leaders Salvini and Berlusconi</span></a><span style="font-weight: 400;"> in the past.</span>
  <a href="https://uk.reuters.com/article/uk-italy-berlusconi-euro/berlusconi-says-italy-cant-leave-euro-coalition-ally-disagrees-idUKKBN1EY0VN?il=0"><span style="font-weight: 400;">Berlusconi said in a radio interview on January 9</span></a><span style="font-weight: 400;"> that “</span><span style="font-weight: 400;">Salvini is no longer of the idea that we should leave the euro” but this view was then contradicted by the Northern League’s head of economic policy in a television interview, underlying the continuation of policy disagreement between the potential coalition partners (</span><a href="https://uk.reuters.com/article/uk-italy-berlusconi-euro/berlusconi-says-italy-cant-leave-euro-coalition-ally-disagrees-idUKKBN1EY0VN?il=0"><span style="font-weight: 400;">Reuters</span></a><span style="font-weight: 400;">).</span>
  <span style="font-weight: 400;">An election that results in </span><a href="https://uk.reuters.com/article/uk-italy-election/italy-to-vote-on-march-4-with-hung-parliament-feared-idUKKBN1EM19L"><span style="font-weight: 400;">no clear coalition being formed</span></a><span style="font-weight: 400;"> would likely lead to a familiar state of policy gridlock in Italy (</span><a href="https://www.economist.com/blogs/economist-explains/2013/04/economist-explains-8"><span style="font-weight: 400;">Economist</span></a><span style="font-weight: 400;">).</span>
  <span style="font-weight: 400;">Hooper said such a situation represents the worst possible scenario for Europe. </span>
  <span style="font-weight: 400;">He believes a euroskeptic coalition would ultimately prove beneficial for the eurozone.</span>
  <span style="font-weight: 400;">“If they can put together a coalition that commands a majority, I think there would be a mixed reaction,” Hooper said. “The markets would heave a sigh of relief. It would mean the worst scenarios—deadlock and a populist coalition involving the Northern League and the Five Star Movement—had been averted.”</span>
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