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How would Italy's `parallel currency' work?

Facing €3.5bn in fines from the EU for failing to tighten its fiscal belt, the far-right League which is part of the ruling coalition has adopted a strategy which "is to offer EU leaders a choice: reform the EU treaties to enable fiscal expansion and allow the European Central Bank to act as lender-of-last-resort; or face the consequences", writes Ambrose Evans-Pritchard in The Daily Telegraph.

Fresh from an emphatic European election victory in which his party swept up nearly 40% of the vote in Italy, League leader and deputy prime minister Matteo Salvini struck a defiant tone, saying "I don't govern a country on its knees".

His answer is to revive the threat of introducing so-called "mini-BOTs", named after Italy's short-term Treasury bills, which would act as a form of parallel currency in competition with the euro.

Reuters says the Treasury "would print billions of euros of non-interest-bearing, tradeable securities which could then be used by recipients to pay taxes and buy any services or goods provided by the state, including, for example, petrol at stations run by state-controlled oil company ENI".

Claudio Borghi, Lega chairman of Italy's house budget committee and long-time critic of the euro, said the plan for minibot treasury notes is written into the coalition's solemn "contract" and will be activated to flank the tax reform package.

"It is a way to mobilise credit that is badly needed and put money into circulation," he said.

"This scrip paper creates parallel liquidity - akin to what [former Greek finance minister] Yanis Varoufakis wanted to do in Greece - to be used to pay €50bn of arrears to state contractors and households", says Evans-Pritchard.

(Links in the original)

That which can't stand must fall. So just do it already.

by fjallstrom on Tue Jun 4th, 2019 at 04:06:15 PM EST
[ Parent ]
Regrettable that it's the Fascists doing this eminently sensible and necessary thing.
Even more regrettable that they will quite likely get away with it, and that it will probably work just fine.

In fact what is truly regrettable is that Tsípras didn't have the guts to do it.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Jun 4th, 2019 at 04:23:16 PM EST
[ Parent ]
Yeah.

I thought it would be 5* that would pull it of, given Italy's economic strenght within the EU, and 5* opposition to austerity. But now it looks like it is the fascists who will do it and be credited for breaking the economic prison of the euro. One more reason not to ally with fascists, if it was needed.

by fjallstrom on Tue Jun 4th, 2019 at 08:06:17 PM EST
[ Parent ]
Then again, the same fascists plan to introduce this neo-lib wet dream: a regressive "flat tax" of 15 to 20% max, regardless of income.

What is Italy's flat tax and who would it benefit? - The Local

After initally proposing a flat tax of 15 percent, the party now proposes a two-tier flat tax of 15 percent on annual earnings of up to €80,000, and 20 percent for incomes above this threshold.

The 2019 budget law introduced a 15 percent rate for self-employed people on up to €65,000 a year.

Forza Italia politician Renato Brunetta said that the idea of the flat tax is to cause a "fiscal shock that will enable the country to escape the trap it's stuck in", and increase growth levels to "more than three percent".

Oh, and in addition to other tax breaks for wealthy foreigners:

Super rich buying up Italy's mansions under new tax regime - Guardian

The client, a northern European entrepreneur who Heath declined to identity, is part of a growing influx of the global super-rich to Italy exploiting a little-known tax break that allows the world's millionaires to pay a "flat tax" of just €100,000 no matter how much money they earn.

"There has been a huge spike in interest among the global wealthy since the tax change," Heath says in his office overlooking a picture postcard perfect view of the Ponte Vecchio in the heart of Florence. "There was an immediate 17% increase when the law changed in 2017 and, now that they [the wealthy and their advisers] are convinced that the tax break is here to stay, we are getting 350 qualified requests a month.

"People love this. You get the same sort of tax savings you get in Jersey [and other tax havens] but you get to live somewhere you actually want to live."

by Bernard (bernard) on Thu Jun 6th, 2019 at 06:14:40 PM EST
[ Parent ]
It is 'natural' for this to be done by fascists. This is well explained by Kaleki in Political Aspects of Full Employment.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jun 4th, 2019 at 04:34:12 PM EST
[ Parent ]
Point, though I don't think Italy has a fascist economy yet:

One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.

The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of `sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.

The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, `discipline in the factories' and `political stability' under full employment are maintained by the `new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.

I think it is more along the line of the Two Santa Theory:

The only thing wrong with the U.S. economy is the failure of the Republican Party to play Santa Claus. The only thing wrong with President Ford is that he is still too much a Hoover Republican when what the country needs is a Coolidge Republican.

These statements, seemingly absurd, follow naturally from the Two-Santa Claus Theory of the political economy. Simply stated, the Two Santa Claus Theory is this: For the U.S. economy to be healthy and growing, there must be a division of labor between Democrats and Republicans; each must be a different kind of Santa Claus.

The Democrats, the party of income redistribution, are best suited for the role of Spending Santa Claus. The Republicans, traditionally the party of income growth, should be the Santa Claus of Tax Reduction. It has been the failure of the GOP to stick to this traditional role that has caused much of the nation's economic misery. Only the shrewdness of the Democrats, who have kindly agreed to play both Santa Clauses during critical periods, has saved the nation from even greater misery.

It isn't that Republicans don't enjoy cutting taxes. They love it. But there is something in the Republican chemistry that causes the GOP to become hypnotized by the prospect of an imbalanced budget. Static analysis tells them taxes can't be cut or inflation will result. They either argue for a tax hike to dampen inflation when the economy is in a boom or demand spending cuts to balance the budget when the economy is in recession.

With turned around roles of course. The traditional big parties has taken turns to take out Santa behind the shed and beat him up - and if they stopped the Troika was there to remind them that the beatings must continue or ECB would put on the brass knuckles. Now the fascists has discovered that they can use Santa - in the form of tax cuts mostly - to give to their local rich elite while ignoring Troika, ECB etc. And thus they can combine looking like they are standing up for the little guy while actually opening the spiggot for the bosses.

by fjallstrom on Tue Jun 4th, 2019 at 08:35:17 PM EST
[ Parent ]
Reading that Wall-Streetwalker Wanniski's Laffer-Curve-promoting drivel makes me go all Luke Skywalker: Impressive.  Everything you just said is wrong.
by rifek on Sun Jun 16th, 2019 at 01:55:53 PM EST
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Doesn't Kalecki assume lack of elections in order for this to work?
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Jun 5th, 2019 at 07:42:28 AM EST
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Not even necessary. It remains to be seen if the frame will hold, but it looks like they've got ten years ahead of them.

One imagines that the Berlusconian economic actors are easily flipped to Salvinism. At least, I can't imagine why they wouldn't be.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Wed Jun 5th, 2019 at 09:24:03 AM EST
[ Parent ]
Seems like this could be used to take a step towards the dreaded European federation...
by asdf on Thu Jun 13th, 2019 at 03:18:20 AM EST
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