We publish the letter from Professor Giovanni Ferri, economist and full professor of Political Economy, in response to questions from one of his students at the Lumsa University of Rome who asked him about the possibility of a return to the lira.
The subject is difficult but it is difficult not to deal with it. I answer concisely because it could be talked about for a long time. We distinguish between an internal profile in Italy and one at EU level. On the first profile, the return to the lira (with consequent devaluation of about 50% against the euro) would determine a flow effect and a stock effect. On flows there would be a huge burden for the cost of imports. However, within a short time, the regained competitiveness of Italian exports in the world would generate an increase in exports probably even more significant than the increased cost of imports. Therefore, within a year an appreciable surplus could be generated on the external accounts. In the meantime, a return to the lira would allow Italy to abandon the fiscal austerity criteria currently imposed by participation in the euro. Therefore, both for the boom in exports and for the expansion of public expenditure which would become possible again, the growth of the Italian GDP would restart after a while. But, after a while problems could arise due to the increase in inflation which, if not prevented, could in a short time erase all the reacquired benefit of competitiveness. On the stocks front, however, things would be sore. All Italian assets would be halved in value, if expressed in euro, and therefore Italy would become much poorer. All in all, in the sum of benefits and costs, I think the costs would far outweigh them.
Even more worrying is the EU scenario. Italy's exit from the euro with devaluation would cause serious tension in the functioning of the European Union. The contagion could spread causing Greece, Ireland, Portugal and Spain to leave the euro as well. Furthermore, it is almost obvious that, faced with the leap in Italian competitiveness, France, Germany and the other countries remaining in the euro would introduce customs duties and protections. The ultimate result would be the destruction of the EU as we know it. This precisely in a historical phase in which Europe is already becoming increasingly marginal in the world economy. In short, a few crickets for the head! The return to the lira is colossal nonsense. I wish you didn't have to live through it. If that happened, I think people like me would be forced to leave Italy.
Best of luck!
