Recent polls indicate that Matteo Salvini is the most popular politician after Matteo Renzi (however, the gap from the premier remains 20 points). His popularity is on the rise, as is that of his party. Among the reasons for this growth in consensus is the League leader's ability to propose clear recipes with immediate impact in a dramatic moment for the country (the third quarter GDP is, together with that of Cyprus, the only eurozone countries to have a minus, -0,1% and -0,4% respectively). The exit from the euro, for example, is indicated as the key to restarting the economy because through the devaluation of the currency it is possible to relaunch production and therefore employment: an easy thesis which, moreover, has long since conquered the 5 Star Movement and recently also a – minority – part of the Democratic Party.
In reality, abandoning the single currency is not the solution to Italy's woes as envisaged by Salvini. The reasons for continuing to be part of the monetary union are, in fact, many, but there are at least three that could easily be used by policy makers to counter the arguments of those hoping for a return to the old lira: firstly, leaving the euro would not be easy at all; secondly, it would cancel a series of advantages acquired precisely thanks to joining the Eurozone, but above all, and here we come to the third point, it would not bring new ones, at least not in the medium-long term. But let's go in order.
First, leaving the European monetary union would be a decidedly complex operation. And not only because the Treaties which only provide for the exit from the European Union but not the exit from the Monetary Union should be changed (if this option were considered, investors would discount the risk and the rates would be much higher). But also because it would be necessary to set in motion an organizational machine of significant dimensions. Suffice it to say that, in the changeover to the euro, in order to meet the needs of 300 million European citizens, 15 billion banknotes were printed and over 50 billion coins minted in three years. In just three months, from 1 January to 1 March 2002, 6 billion banknotes and 30 billion coins were withdrawn from circulation. If it were decided to abandon the single currency, how long would it take for the Bank of Italy to put the lire into circulation and withdraw the euros (considering that citizens cannot be forced to return them)? Difficult to answer, but it certainly wouldn't be a quick transition and citizens would be the first to suffer the consequences. Starting with daily life. For example, if the government, in order to speed up the process, aimed to encourage the use of electronic money or checks, what impact could such a decision have on some categories of people, such as pensioners and small traders, who use seldom these payment systems? And what would be the lack of coins that are used to pay for parking or drinks in vending machines?
The organizational machine of changeover it should not only be imposing but also somewhat “secret”. This is because it is difficult to think of leaving the monetary union in a "democratic" way. Once the plan to abandon the single currency has been announced, panic would ensue. There would be a run on bank branches and, for those who can - and often it is the most privileged sections of society who can - a strong incentive to take capital abroad for fear of seeing their savings converted into a more weak: the result would be the collapse of the banking system. The decision should therefore be taken suddenly, ie without democratic consultation (unlike the accession to the euro which instead took place in a democratic way because it was voted by national parliaments, in some countries even through referendums). The ideal would be when the markets are closed, during the weekend. However, the implementation of this decision would still be complicated because, once out of the euro, just to avoid chaos, the banks would have to immediately close their doors. And then capital controls should be introduced. But for how long? A lot actually. Suffice it to say that in Cyprus the check on ATM withdrawal limits lasted a year. Without controls it would be impossible to proceed with the change and the Italian experience in September 1992 demonstrates this: to try to stop outgoing capital movements, interbank rates rose to 40%.
Secondly, the transition to the lira would eliminate a series of advantages that most citizens now consider "acquired". Like having low interest rates, a benefit that comes from being a member of the Monetary Union. Suffice it to say that before joining the euro, long-term interest rates were at 12%, now they are below 3%, a drop that has generated huge savings in spending for a country that has a debt/GDP ratio between the highest in the world. Exiting the euro would mean returning to a situation of high interest rates and therefore to greater interest expenditure borne by the State: in other words, fewer resources for schools, hospitals, nursery schools, and for families, more expensive installments than the mortgage in if the latter were at a variable rate. But also to a situation of greater financial volatility because there would be wider fluctuations in the exchange rate of the new currency. In addition to providing stability, belonging to a monetary area allows individual countries to have, together with the other members of the Union, the economic strength and size to face giants such as Brazil, China or India. Detaching would mean being "small" and therefore not counting in an increasingly globalized world.
Thirdly, leaving the euro would not bring the desired benefits, at least not in the medium to long term. Starting with those deriving from the much-desired devaluation. It is clear that in the immediate future, a devalued lira could improve competitiveness and give new life to exports. But if a country hasn't implemented the reforms, i.e. it hasn't put products on the market that are competitive on quality and not on price, it risks finding itself having to run after whoever has a greater price advantage. And it would be an uphill battle, especially if it weren't just Italy that was devaluing. If, for example, another country also decided to leave the single currency in order to gain competitiveness, this would give rise to a trade war that would benefit no one. Among other things, one cannot think of devaluing one's own currency on a continuous basis because otherwise investors would incorporate this measure into their expectations and ask for higher interest rates, nullifying the short-term "positive" effect of the devaluation.
But how much should the initial devaluation be? The scope of the operation should be large based on what happened in the past in Italy. In 1992, the lira-mark exchange rate went from 765,4 lire on 11 September 1992 to 938,7 lire on February 1993 and then stabilized at 900 lire in the following months. In four months the lira devalued by 30%. However, this is an optimistic scenario with respect to what could happen, because it is one thing to exit a fixed exchange rate system, another from a monetary union. Therefore, one should expect at least as large a devaluation, which – under certain conditions – would give rise to higher inflation resulting from the increase in the prices of imported goods. Starting with raw materials such as energy: in other words, higher bills for everyone.
In conclusion, returning to the lira would bring no advantage other than giving the political class an alibi for not implementing politically costly reforms, but necessary to structurally change the country's productive and economic set-up. Outside the euro, there would be no growth but more debt, more inflation, banks failing, businesses without credit and households paying more for everything. This is why, before asking how to abandon the single currency, we should ask the Greeks why they didn't want to leave the monetary union, despite the sacrifices they had to make.
