The Plan B (to the Euro) of the reader. After the writer in the past has indulged in analyzing the famous Plan B by Paolo Savona (v.articolo), in listing specific cases of secession by a confederation (v.articolo) and, finally, in presenting the scenarios of a possible exit from Italy from the European Union (v.articolo), last week we proposed that readers should look beyond the Eurozone, starting from a premise: net of the two-speed European hypothesis, there is no recession clause from the Eurozone, anyone who wants to go out from Euroland it must inevitably come out of the European Union. To the reader, both a convinced Europeanist and a fierce Euro-skeptic, we asked to illustrate the scenario of the so-called Italexit, the exit of our country from the single currency and the Union, trying to illustrate the situation in Italy in the short-medium term. , bearing in mind our Constitution, international treaties, the (inevitable) reactions of the countries and the decisions of the institutions involved.
We have received many interesting articles and we have decided to grant the honor of the publication to four of them, because they are the bearers of as many original and distinct positions among them, which we publish below. At the end, the reader will find the writer's considerations on the theme of Italalexit and the theme of next week. We hope that this section will continue to please you!
The reader Gianni Berardi has well grasped the mother of all our problems: the lack of international credibility of Italy, not caused by a single government but chronically bad in Italy, perceived as not very reliable by European partners and not only. Let's face it: we do not even try to hide the fact that we often behave like happy scoundrels. The conclusion of the reader prefigures a scenario of definitive decline: the comparison with the economic standards of the Visegrad countries is effective, but unfair to these countries greedily grab all the European funding they can grab - and that we often return to the base - and they have increasing standards of living. Suffice it to say that salaries in Poland in the 2017 have grown by almost 4%, while in Italy (and in the United Kingdom of Brexit) they have fallen by almost 1%.
The age-old Italian incapacity, otherwise modulated along the whole boot, to follow the rules or to get effective and to keep the commitments, appears evident with the actions of the last governments; and how long it has happened, it translates into a short-term vision that takes the debt to maintain consensus. This sin is so much greater in these times of prolonged and prolonged Quantitative Easing, operating within a historical peculiarity for which an increase in the monetary base does not produce unwanted consequences on inflation.
A historical peculiarity is however such because it does not last. At the subsequent debt crisis, now deprived of the powerful instrument of monetary policy, the European institutions must save themselves and their flag bearers. Here is materialize a heterodirect exit from the euro long more than a year on a formal level, but very fast on the practical one with the request for immediate settlement of the Target2 balances against the ECB, while devaluation and inflation chase each other in an amarcord years' 70. Italy is still there, but the economy finds a balance that brings salaries and assets of Italians to those of the European freshmen of Visegrad, a path already concretely undertaken, as a sinister foreboding, by our national football team.
The thesis of the reader Giovanni Cabiddu is, so to speak, the "classic" of the No-Euro: with the exit from the EU / Eurozone, in the immediate future, our country would suffer heavy repercussions (galloping inflation, loss of value of the new Lira, etc.), but then - given the implosion of the single currency and ultimately the European Union - Italy would become more competitive. It is a thesis that we often find on the lips of exponents of the current yellow-green majority and that the writer respects for his patriotic motivations, but who, to be honest, is never supported by exponents of the real economy, those same which, according to the No Euro, would benefit the most. This is because the tsunami provoked by Italexit, right in the early stages, would shake our country to the ground, to the point of doubting its existence as a single nation. Those who do business do not believe that the many small Italian companies would survive the secessionist "shake"; However, he does not doubt that in a world where Italy has the political seriousness of the United Kingdom or an economy as rich as Switzerland, what was hoped for by the No Euro would really be a great temptation ...
It is good to point out that the so-called Italexit does not exist. The exit of Italy from the euro area would lead to the explosion of the area itself and would put the EU itself at risk. Here because:
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The euro would have an immediate strong revaluation generated by the exit of Italy which, with its precarious public finance, allowed for a relative weakness in relation to the dollar and other currencies.
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The revaluation of the Euro would immediately generate a collapse of the trade surplus of the countries of northern Europe, Germany in the first place, exacerbating the situation of countries already in trade deficit, such as France and Spain. This would then generate corporate crises, unemployment, wage cuts with a consequent reduction in consumption and would lead to an extremely dangerous social scenario. Furthermore, the financial and banking system of many of these countries, virtuous in public debt but dissolved in private debt, would jump, given the impossibility of families and businesses to repay debts. The euro area would have passed off.
In Italy we would have:
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Immediate, a strong difficulty in coping with the financing of public debt, with the need to procure in foreign currency at high interest rates, mitigated however by thethe Italian Central Bank is it could print and "inflate" the economy a little, taking into account that, in a country that has the production machine to a minimum, before generating high inflation, there are ample room for maneuver. The devaluation of the new Italian foreign currency would be mitigated by the fact that having a trade surplus, the demand for it would be high and would increase.
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Then a revival of the economy, as the new national currency would allow an increase in the competitiveness of Italian companies that would increase our already good trade surplus, thus increase employment and distribute consumption, investment, bank deposits and tax revenue.
I would not worry about the reactions of other countries towards Italy, because of the situation everyone would have other problems to solve, including the EU holding that would no longer be the same.
Luca Morandini has a very personal style in writing, but he supports, arguing with conviction, a very interesting thesis: why do not we raise the heels from that bankruptcy house that, for some, is the European Union and we ask to become the fifty-first state of the federation North American? It does so starting from "what unites us" and with sincere appreciation - perhaps a bit 'too optimistic - of the great Anglo-Saxon Nation. The question, very serious even in its originality, is another: if they do not think of joining the United States of America Ireland and the United Kingdom, which have even more in common with the US, because we? Given that there are those who sell (Italy), we are sure that there is someone willing to buy (the US themselves)? And then, are we sure that our representatives in Congress would defend the interests of the new state better than Italian MEPs?
The future: Good morning Italy! After the difficult European bankruptcy experience, tired of being plundered and made fun of, since like the flower children we were the only ones to think seriously about a Europe: united, happy, friendly and equal, dreaming of a common language, perhaps the English, peace and love in short ... Our heroes, the people who belonged to the CESARI, had a great idea, as did the British: they came out of Europe. The idea was born from the fact that: "since we have discovered it ..." Why not? We adhere to the United States of America !!!! Huge benefits for us: our companies protected in the world with a huge market of 330 millions of potential customers, which buy almost exclusively exclusively made in the USA (as we now Americans do two counts); an immense army with facilities and means for our soldiers, a joint policy with the other states of the Union, our citizens with equal rights throughout the country, a common language while maintaining our identity, no one who plunders companies or it humbles you continuously.
The United States is already richer than us. We have always been there: thousands of our migrants have made it big and thousands of Italians have managed to grow up. We are already rich in America: the bases born, thousands of soldiers, many already married with Italian women and men, culture and music with stars and stripes, car companies in common. This is our place. Europe? Only an illusion, something behind the Alps that does not belong to us, a geographical expression, is not that which the French and Germans have always said about us?
We leave the word to Mark the reader without too much comment: his argument is so structured that one accepts it because - in its own way - it is scientific or refuses it because it is not patriotic enough. Who writes like.
If Italy returned to the Lira, what would happen at the Microeconomic level ?!
Suppose that in Italy the euro paper money is converted into Lire with 1 exchange: 1 for simplicity Lit.1000
The current account balances are assumed to be Lit.4000 from which M1 = 5000 Lire.
The savings in Government securities, Shares, Bonds, other debt securities ... let us suppose both Lit.30000.
Enlarged M1 would be about 35000 Lire.
Imagine that at the same time 20000 lire of public securities expire and Bankitalia prints 20000 lire to buy the new government bonds, or the State various a mega-deficit financed with paper money of the same amount.
The monetary change would be 20000 / 5000 = + 400% calculated on M1
The monetary variation would be 20000 / 35000 = + 57.14% calculated on enlarged M1 (inflation by monetary causes)
How much would the Lira be worth, after a year on the Currency Markets ?!
The initial change of Euro 1: Lira 1 assuming that on the financial market the Lira was quoted with Certo per Uncert mechanism, after a year the Euro would be E1.00 but the Lira 1 * (1-0.57) = 0.43 Lire, would be 1 / 0.43 = 2.32 lire to buy a Euro, after a year there would also be an imported inflation of + 232%
Would there be foreign investors willing to allocate part of their portfolio in Lire to diversify? No !, because Lire Financial Activities would be unable to maintain its value over time. Bankitalia should defend the Lira on the financial markets, the TUS would rise by how much?
inflation by monetary causes: + 57%
economic growth: about + 1%
imported inflation: + 232%
country risk: by convention about 90% of inflation 0.9 * (232 + 57) = + 260%
Total about TUS = 550%
+ sector risk: by convention about 90% of TUS = 495%
Total about PRIME RATE = 1045%
No Italian entrepreneur would be able to pay galloping interest rates !.
Workers, employees, pensioners, unemployed people would see their real wages deteriorate! Insurance, pension funds would see their mathematical reserves lose value quickly. The happy Italian State would turn its debt into waste paper! Would Italy easily export to Europe and the world with the devalued Lira? No, because in a context of high inflation, companies close, in order to survive they should return to the Euro: in Italy a very rapid economic desertification would devastate the country, many areas would try to separate from Italy to return to Fort Euro; the problems of public order would change to escalate in military problems. No, because if Italy came out of the Euro, the Italian government bonds issued and classified abroad, if they maintained the denomination in Euro, would be very expensive to pay for the Italy, thwarting the benefit of exports, devastating the Italian balance of payments. No, because if Italy came out of the Euro, Italian government bonds classified abroad transformed into Lire, would cause a loss in interest / capital account in foreign holders who would have paperwork, foreign nations would react with tariffs and quotas on products Italians, to protect their markets in euros.
The time of competitive devaluations has passed !, countries such as China, South Korea, Japan, Taiwan, Asian tigers, India, produce products with increasing quality and high added value, also have powerful economies of scale and size, their economic fabric is composed of large companies able to develop and apply research with which to obtain competitive advantages. The majority of the Italian industrial fabric is instead made up of small companies (under the 10 employees) who have never done - and will never do - applied development and research.
At this point, the writer gives a few lines for his considerations on the Italexit theme.
The problem, in hindsight, is not whether to go out or when to go out, but under what conditions we would be and what geopolitical results we would produce if we went out in the short term. Let me explain: a country with just 37 billions of foreign exchange reserves, how can you think of being credible when it had to defend - alone! - the strength of 1.800 billion sovereign debt? To make a comparison, China has 3.100 billion reserves, Japan over 1.200, the small Switzerland 737; even the most "poor" of the European partners outside the Eurozone are much better off than us1. Those who talk about competitive devaluation think a bit 'as the French strategists who prepared the Maginot Line thinking about the First World War and that produced a defense now anachronistic. No one has noticed that with the return in the grand style of tariffs and the end of globalization if we also acquire a competitive advantage, the US, the European Union, China and Japan would raise barriers to our products? But - on closer inspection - it is typical of us Italians to fight every new war (even economic and financial ones are such) with the weapons of the previous one. Do we want to leave the Eurozone? Let's do it! But first we seriously invest in the "Country System", improving the fundamentals of the economy (starting from investments in research and development, as claimed by one of the readers) and cutting many medieval privileges. Let us ask ourselves, each one, if we are ready to lose today some of our lazy daily life to find ourselves living tomorrow in a leading country. The wars - because the voluntary exit from the Union is this: a challenge to our "members" - they start when you are in a position to win them, not because you want to be, once in your life, romantic heroes. But losers ...
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That said, let's move on to the subject of next week. The reader is required to write an analysis - of maximum 300 words and always following the rules of the previous articles - of the geopolitical situation of the Russian Federation, in particular with reference to the challenges that await the great Eurasian country in the next ten years, presumably the last of the Putin era. It is not a matter of extolling the gigantic figure of the Russian statesman or of highlighting the limits on respect for the rule of law and international law, rather than placing Russia in the evolution of the international scenario.
The email to send is geopolitica@difesaonline.it
1 The Czech Republic 150 billion, Poland 120, Hungary 43.
(photo: US Marine Corps)
