Business

In Italy's 'Plan B,' euro-skeptic and their currency ideas take center stage

Reuters

If Italy leaves the euro, it will be late on a Friday night.

Government officials will have planned the move in the utmost secrecy, telling their European partners only that same evening while simultaneously ordering the shutdown of banks and financial markets to prevent a stampede of capital out of the country.

This is “Italy’s Plan B,” an eye-popping contingency scenario drawn up by the team at a website specializing in economic issues, for how the eurozone’s third-largest economy should go about returning to the lira if necessary.

The 80-page booklet was overlooked when it first appeared in October 2015, and would ordinarily have stayed that way.

But then one of the best-known contributors to the website, 81-year-old economist Paolo Savona, was put forward as a candidate for economy minister under the new anti-establishment coalition between the right-wing League and the 5-Star Movement.

The government forged on Thursday has since relegated Savona to the more junior European affairs portfolio after the head of state refused to allow an arch-euroskeptic to occupy the key economics ministry.

And inside the League, which is dominant in the wealthy Lombardy and Veneto regions in the north, sources say there are no signs of anxiety that leader Matteo Salvini would ever risk the chaos of pulling the country out of the single currency.

Nevertheless, “Plan B” remains on the list of compulsory reading for those seeking to understand the intellectual foundations of the new coalition.

Salvini, the new interior minister and a deputy prime minister, has been particularly instrumental in bringing Savona and several other euroskeptic economists and their ideas out of intellectual obscurity and into the Cabinet for the first time, people familiar with the situation said.

New Economy Minister Giovanni Tria, economics professor at Rome’s Tor Vergata University, was not involved in outlining “Plan B,” but he, too, is no fan of the euro.

Last year he wrote that “not even European Central Bank President Mario Draghi is right when he says the euro ‘is irreversible,’ unless he clarifies the conditions and timings of the reforms needed to save the euro.”

On Friday night, however, said that he “never said that Italy must leave the euro.”

“A debate on how to reform Europe is going on all over the bloc, and in Italy too. There is no political force in Italy that wants to leave the euro,” he added.

Salvini has cited euroskeptic thinkers who characterize the currency union as a form of monetary “slavery” — a view not promoted by the League and its heavily business-based supporters until he became its head in 2013.

“Euroskeptic economists have been very able to build up a consensus on social media. Thanks to Salvini, they have now emerged from the academic shadows,” said Riccardo Puglisi, a political economy professor at the University of Pavia and one of the most vocal critics of the idea of leaving the euro.

Another economist who has moved into Salvini’s intellectual circle is Alberto Bagnai, who entered parliament as a senator for the first time in the March 4 elections.

An associate professor in economic policy at Gabriele d’Annunzio University, Bagnai published “Il tramonto dell’euro” (“The Sunset of the Euro”) in 2012, a book considered by Salvini as a must for any library.

In it, Bagnai described the euro as “an economic monster” and German Chancellor Angela Merkel “as intransigent as a League member” for advocating austerity for recession-hit European countries during the global financial crisis rather than letting them spend more to support internal demand.

At the center of Salvini’s euroskeptic circle is League economics policy chief Claudio Borghi, an economist and former managing director of Germany’s Deutsche Bank who just before 2014 European election wrote “Basta euro” (“Enough Euro”), the party’s policy on the single currency.

In it, Borghi claimed the European single currency would inevitably come to an end and expressed his hope that this would happen sooner rather than later.

Savona did not respond to requests for comment. Bagnai did not comment. Borghi said he was an economist coming from the business world rather than academia.

Economists in favor of leaving believe that a devalued currency would revive Italy’s exports and that by throwing off the shackles of EU fiscal rules the country could ramp up public spending to boost growth and create jobs.

Salvini’s outspoken attacks on the fiscal rules governing the eurozone, which Italy agreed to in the 1992 Maastricht Treaty, appear to be polling well with Italian voters who traditionally have been among the strongest supporters of the single currency.

But few inside the League believe he would ever take the plunge and pull the country out of the currency.

“The League’s leaders are radical but not mad. In the era of social media, strong language helps to attract followers on the web, but we are in good hands,” said a longtime member of the party who was not authorized to speak publicly on the matter.

Those who want to stay in the euro say that leaving it would trigger a surge in interest rates and inflation, capital flight, a banking crisis and possibly a default on Italy’s public debt.