Saturday, July 7, 2018

Global Policy Lab - A parallel currency for Italy is possible

How to Fix the Eurozone

Could this fix be implemented in all Eurozone countries, as it does sound like a good idea. KV 

Rome can regain control of its monetary policy without breaking the rules of the eurozone.

In Joseph Stiglitz’s recent article for the POLITICO Global Policy Lab (“How to Exit the Eurozone,” June 29, 2018), the Nobel-prize wining economist proposes that Italy issue a parallel currency as a way to retake control of its monetary policy.
It’s an insightful idea, and one worth exploring. However, Stiglitz is wrong when he suggests that “introducing a parallel currency, even informally, would almost certainly violate the eurozone’s rules and certainly be against its spirit.”
Our organization — the Group of Fiscal Money — has been very active in developing and promoting such a dual-currency scheme. We call it “Fiscal Money” and believe it could be used to avoid the uncertainties of exiting the euro while allowing Italy to recover economically without breaking any EU rule.
Our proposal is for government to issue transferable and negotiable bonds, which bearers can use for tax rebates two years after issuance. Such bonds would carry immediate value, since they would incorporate sure claims to future fiscal savings. They could be immediately exchanged against euros in the financial market or used (in parallel to the euro) to purchase goods and services.
Fiscal Money would be allocated, free of charge, to supplement employees’ income, to fund public investments and social spending programs, and to reduce enterprises’ tax on labor. These allocations would increase domestic demand and (by mimicking an exchange-rate devaluation) improve enterprise competitiveness through a reduction in the cost of labor. As a result, Italy’s output gap — that is, the difference between potential and actual GDP — would close without affecting the country’s external balance.


Konrad said...

I wonder if maybe, just maybe, average Europeans are finally starting to suspect that the euro currency has always been a scam.

Nineteen nations use the euro. The monetary policy of all nineteen nations is dictated by the Troika (i.e. by the European Central Bank in Frankfurt, the European Commission in Brussels, and the IMF in Washington DC).

Among euro-zone nations that have trade deficits, their fiscal policy is likewise dictated by the Troika. (Not just their monetary policy.) The Troika dictates how these governments shall spend their money.

Euro-zone nations with trade deficits must borrow all their euros from banks, which create euros out of thin air. This is insane.

Criminal bankers promote the euro as a means to unite Europe into one big happy family. In reality, the euro is designed to allow economically stronger nations to prey on weaker nations, and to allow bankers to make a killing. The euro is great for nations that have huge trade surpluses like Germany. Those nations use the euro scam to suck the life from nations that have trade deficits like Greece.

To use a religious analogy, Satan controls you by convincing you that you, not Satan, are 100% to blame for your misery. Likewise, Germany keeps Greece in ever-worsening debt bondage, while constantly scolding Greece for financial “irresponsibility.” Average Greeks accept this false blame. They lick Germany’s boots. They cling to the euro more than anyone else does. The euro that is killing them.

In Italy, Matteo Salvini is Interior Minister, and is also the leader of the right-wing Northern League party. Salvini is now patting himself on the back for having slammed all doors to further refugees. If Salvini really had courage, he would work to wean Italy off the euro, and work to end Italy’s participation in the Western Empire’s military and economic wars that create refugees in the first place.

Africans account for less than a third of all European refugees. Most of the other two thirds come from Syria, which the Empire has been attacking for seven years. The second biggest percentage comes from Kosovo, which the Empire created via its military attack on Southeastern Europe in the 1990s (the Yugoslav Wars). The third biggest percentage comes from Afghanistan, once again because of the Empire and its wars.

If you give any support to the Empire’s wars, then you help to create refugees.

Andrew Anderson said...

The eurozone has long recognized the need for a banking union. But Berlin has insisted on postponing the key reform — a common deposit insurance — that would reduce capital flight from weak countries: Capital flight was a key factor in explaining the depth of the downturn in the crisis countries. Joeseph Stiglitz

Our two tier money system where only the banks may have accounts at the central bank and the non-bank private sector may only have accounts with the banks, credit unions, etc. is a hold over from the days of expensive and thus scarce fiat, i.e. since there was not enough fiat, bank credit would have to serve in its place for the non-bank private sector.

Well, the days of expensive fiat are long gone so some thought should be given to supplementing the current two tier system with all its attendant stability and ethical problems, including moral hazard, with an all-fiat system consisting of individual, business, State and local government, etc. debit/checking accounts at the Central Bank alongside those of the banks.

By doing so, we would then have TWO payment systems:
1) The current at-risk, not necessarily liquid payment system that must through the banks.
2) A risk-free, liquid at all times payment system residing completely within the Central Bank.

Once 2) is established, then the progressive elimination of government provided deposit insurance and other privileges for the banks shall insure that the remaining depositors at banks, etc. shall be 100% voluntary and not the captives they currently are.

Matt Franko said...

"But Berlin has insisted on postponing the key reform — a common deposit insurance — that would reduce capital flight from weak countries: Capital flight was a key factor in explaining the depth of the downturn in the crisis countries. Joeseph Stiglitz"

Its not "capital flight" (metaphor) its just how the System of National Accounting works... even Trump knows this much...

If Germany is maintaining a trade surplus with Greece, the German firms get paid when the loans to finance the products are first established in Greece... "loans create deposits" so the loans are established in Greece and the deposits are established in Germany to pay the producers...

To believe Stiglitz, the German firms would then have to transfer their deposits back to Greece banks ... who would have a hypo better deposit insurance?... and take out loans in Germany to pay their workers...

Stiglitz doesnt look at it as "loans create deposits" he thinks "banks lend out the deposits"... so he thinks if there was better deposit insurance, the German firms would use Greek banks .... doesnt work that way...

Andrew Anderson said...

I think it may simply be this: Depositors in Greek banks did not trust Greek deposit insurance so they moved their deposits to Eurozone countries where the deposit insurance was least likely to fail.

Only a monetary sovereign can truly have fail-proof deposit insurance so the ECB would have to furnish it to Eurozone countries.