Friday, June 1, 2018

Raúl Ilargi Meijer — This is Italy. This is not Sparta.

And then there are the mini-Bots, a parallel currency system very reminiscent of what Yanis Varoufakis proposed for Greece. Basically, they would allow the government to pay some of its domestic obligations (suppliers etc.) in the form of IOUs, which could then in turn be used to pay taxes and -other- government services. They would leave what is domestic, domestic.

There’s a lot of talk about this being a first step towards leaving the euro, but why should that be so? The main ‘threat’ lies in the potential independence from Brussels it may provide a country with. But it’s a closed system: you can’t pay with mini-Bots for trade or other international obligations.

Italy, like an increasing number of Eurozone nations, is looking for a way to get its head out of the Brussels/Berlin noose that’s threatening to suffocate it. If the EU doesn’t react to this, and soon, and in a positive manner it will blow itself up. Yes, if Italy started to let its debt balloon, the European Commission could reprimand it and issue fines. But the Commission wouldn’t dare do that. This is Italy. This is not Sparta.
Backgrounder on Spain, Turkey and Italy.

The Automatic Earth
This is Italy. This is not Sparta.
Raúl Ilargi Meijer


Ralph Musgrave said...

Re government paying for stuff with IOUs which can be used to pay taxes, I seem to remember Warren Mosler likes that idea, but I don’t see that it gets Italy, Spain etc anywhere.

The problem is that those IOUs will be stimulatory / inflationary, and the periphery countries like Italy are in trouble because they’ve let their costs (in terms of Euros) rise too far, which renders them uncompetitive with Germany. So those IOUs simply exacerbate the latter problem.

Strikes me Italy etc just have two choices: 1, join (or stay in) the Euro and s*dding well keep costs (including wages) under control, or 2, don’t join (or leave) the Euro, and let periodic devaluations of the Lira take care of the “competitive in relation to Germany” problem.

Ralph Musgrave said...

In this video, Warren advocates a new Lira currency to run alongside the Euro in Italy. That strikes me as better than the above "IOU" idea because the Lira would amount to a local currency (like Ithaca hours sort of). Liras could float in value relative to the Euro. Or perhaps the two currencies come to the same thing???????

Schofield said...

The trouble with Italy is they've allowed their costs to rise too far. Hmmm?