Fears over parallel currency in Italy, besides the euro

Casper de Vries
Erasmus School of Economics

The Five Star Movement and the League’s common programme contains enough to spark conflict with the EU and the eurozone: higher spending, lower taxes and assaults on eurozone fiscal and monetary rules. The two parties’ government plan includes a new class of short-dated government notes that would be created specifically to pay Italy’s chronically late arrears to private companies. The idea gave rise to fears that the notes would be a parallel currency and would possibly lead to a euro exit.

According to Prof. Casper de Vries, who holds the Witteveen Chair of Monetary Economics at Erasmus School of Economics, ECB President Mario Draghi could get into trouble: ‘This is a big problem for the ECB. Draghi is really not concerned about the rise of inflation, he is trying to save Italy by keeping interest rates low.’

If Italy were to crash and default, the damage could be huge. Yet, even this ignores the wider economic, not to mention political, impact. It will be harder to bully Italy than Greece, largely because Italexit is obviously a far more dangerous proposition than Grexit. Italy is not Greece. But not all the differences are encouraging. Its economy is 10-times bigger. Its €2.3tn public debt is seven-times bigger; it is the largest in the eurozone and fourth largest in the world.

More information

Read the entire Dutch article in ‘De Financiële Telegraaf’, 24 May 2018

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