Italy’s populists say they don’t want to leave the euro. Their actions say otherwise.


The first rule of leaving the euro is you don’t talk about leaving the euro.

That’s because, if you do, you’ll not only alienate the vast majority of voters who all want to stay in the common currency, but you’ll also be blamed for the resulting bank run that will cripple your economy. Nobody, after all, wants to see their euros turned into, say, lira that wouldn’t be worth anywhere near as much, so everybody would try to get their money out of the banks before that could happen. That’s why the best way to actually exit the euro is to say that you don’t want to at the same time that you prepare to do so. Disingenuousness is required.

Which is to say that Italy really might blow up Europe’s 20-year experiment with sharing a currency. It just elected a populist government, you see, that’s made up of the ideologically incoherent protest party known as the Five Star Movement on the one hand, and the Russia-loving, immigrant-hating, far-right League on the other, both of which have flirted with euroskepticism in the very recent past. Now, it’s true that they’ve tried to reassure investors about this by removing the most explosive parts of their platform — calling on the European Central Bank to write-off the $300 billion worth of Italian bonds it owns, and for an end to the euro zone’s budgetary strictures — but this barely even qualifies as a fig leaf. They are still proposing to do things that they aren’t allowed to under the euro’s rules whether they are asking for those rules to be repealed anymore.

In particular, Italy’s populists want to run much bigger deficits than they are “supposed” to. That’s the only way they will be able to push through the basic income for poor families that the Five Star Movement campaigned on, the much flatter tax system that the League did, and the more generous pension system, undoing cuts that a previous government was forced to make, that they both want. This would already be a big enough challenge to Europe’s prevailing orthodoxy, but what would be even more so is the way they want to pay for this: by either printing money, or adding new debt that they pretend isn’t.

It has to do with what goes by the catchy name of “mini-BoTs,” but what are better understood as IOUs. These would be “bonds” that, like money, would neither pay interest nor ever come due, and, also like money, could be used by whoever had them to pay taxes with or buys things from state-owned enterprises. Private businesses, however, would not be required to accept them. This means that mini-BoTs wouldn’t be quite as useful as euros, and so would almost certainly trade at a discount to them — just like a new Italian currency would. The only question here is whether these IOUs really would be backed by future tax revenue like the government claims. If they were, they would just be bonds that Italy wasn’t allowed to sell, and if they weren’t, they would be money that Italy wasn’t allowed to print. In either case, though, Europe wouldn’t be too happy.

That, at least, is the plan. The idea is to provoke a reaction from Europe, like the ECB pulling the plug on their banks, while at the same time proclaiming their fidelity to the euro. That way it looks like they were pushed into something they didn’t want when they really did — specifically, a fight over their future in the common currency — and consequently their people might support the kind of confrontation that they otherwise wouldn’t have. That, in turn, would give the government the political capital it needs to play this particularly high-stakes game of chicken. Which is where the mini-BoTs come in. By creating what’s potentially a new currency, Italy is trying to make it so Europe can’t threaten to push them out of the euro so much as they can threaten to leave it — and maybe win some concessions. That’s what Greece’s populists unsuccessfully tried to do in 2015, and what Italy’s are hoping will work out better this time for the simple reason that their economy is so much larger that there’s no way Europe could contain all the fallout if they do ditch the euro.

The only difference is that Italy’s populists seem much more willing to abandon the euro than Greece’s were. Indeed, they just nominated a longtime euroskeptic who has said that they “need a plan B to leave the euro” because “Germany has not changed its vision of its role in Europe since the end of Nazism” to be their finance minister. Not to mention that the League’s leader Matteo Salvini seems to actually welcome this prospect since it would probably also force them out of the European Union, and, as a result, free him to deport as many immigrants as he wants in his newfound capacity as interior minister. He’s already told France that they won’t change course, because this is what they consider putting “Italians first.”

I guess the second rule of leaving the euro is you can talk about it all you want once you have a plan to print your own money.



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