Stop me if you’ve heard this one: The eurozone’s Facebook page has changed its currency status recently. It went from ‘single’ to ‘it’s complicated’.
Speaking of complicated, my wife misunderstood my son when he asked for some Play-Doh for Christmas. She got him a load of euros.
Seriously, whilst we’re on the subject of the euro, I hear the eurozone leaders are looking for a stimulus package. Silvio Berlusconi suggests two Viagra and a Red Bull.
The jokes could have come from Beppe Grillo’s latest stand-up routine, except that the eurozone crisis, as Grillo is all too aware, is no laughing matter. It could be seen as ironic then, that the Italian comedian and newest comer to Italy’s political stage is the only politician suggesting remedies to Italian woes that might actually work.
Speaking to the German news magazine Focus on Saturday, Grillo said that “if conditions do not change” Italy “will want” to leave the euro and return to the Lire. And in another interview with a German newspaper yesterday, he added “I am a strong advocate of Europe. I am in favour of an online referendum on the euro.”
The Pew Research Centre found last December that only around 50% of Italians are in favour of keeping the Euro, with marginally fewer favouring a return to the lire (the rest ‘don’t know’). Although a referendum would be non-binding under Italian rules, it would send a clear message to Rome and Brussels that the Italian people are fed up with high unemployment and crippling austerity with no way out.
Crucially, Grillo himself doesn’t seem to have any particular wish to leave the Eurozone. Rather, he seems to have stumbled on this solution as part of his pro-plebiscite / anti-establishment agenda. Yet it is the very fact that the establishment is not contemplating leaving the Euro which makes his message so stark, because leaving the Eurozone is exactly what Italy – and Greece, Spain, Portugal and Ireland – should do.
The Euro has been an absolute disaster for the PIIGS. With smaller economies than their northerly neighbours joining the Eurozone it meant a steep drop in interest rates which incentivised borrowing on a mammoth scale. Between 1997 and 2008, public spending per capita in Greece rose by 140%, compared to just 35% in the core Eurozone countries. To the Europhiles, the huge boom in growth in these countries seemed to vindicate the idea that a single currency could drag poorer countries up to the same level as their richer counterparts. But in truth, the increased domestic demand pushed up wages, sharply eroding the competitiveness of these countries. Italian wages rose 32% between 2000 and 2009 whilst German wages rose in line with productivity. All that was needed to expose the problem was an event such as the 2008 downturn.
Conversely, therefore, it follows that the best thing these countries could do to remedy their problems is to leave the Eurozone.
Last July, Bank of America Merrill Lynch released a report naming Italy as the country most likely to benefit from abandoning the euro. Why Italy? Primarily because it is well placed to benefit from export driven growth, through increasing competitiveness by moving to a lower valued currency. However, regaining control of its own fiscal policy would have further benefits:
1) Taking the reins would allow the Italians to pull the same trick as Osborne, namely the euphemistically named ‘quantitative easing’. In other words, the Italians could simply print off more lire to pay down the debt.
2) It would also enable wages within Italy to return to more competitive levels, ultimately increasing employment.
3) It is possible, according to the report, that the Italians could redenominate their debt, simply offering 100 lire of debt payments in place of €100. Doing so may not constitute a default as there is a wide range of latitude given to governments over the ability to restructure debt.
I’m sure there are plenty of other good reasons, not least of which would be the schadenfreude enjoyed by those of us who would like to see the project to integrate Europe fail.
But to those of us who have been watching the rise of UKIP over the last few months with interest, the fact that it has taken an ‘outsider’ party, led by a comic and fielding candidates from a wide range of backgrounds, to give voice to the common sense solution in Italy should give us plenty to ponder in our home country.