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12th Aug 2022

Euro is 'indispensable', Italian populists say

  • Italian banks are among the most indebted in the EU, amid the populist election victory (Photo: Michelle Lee)

Italy's EU affairs minister has said the euro was "indispensable", reassuring markets amid uncertainty over Italy's new government.

"The euro not only has positive aspects but also has indispensable aspects. If you want a single market you have to have a single currency," Paolo Savona told press in Rome on Wednesday (13 June).

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"There is no plan B. I have never asked to leave the euro. How many times do I have to repeat it? My position is clear," he added.

The 81-year old economist spoke at the launch of his autobiography, entitled Like a Nightmare and a Dream, which does say Italy should have a euro-exit plan.

But he said his musings as a private person were no longer relevant now that he had assumed public office.

"I no longer represent my personal ideas, which are in the book, but the ideas of the government to which I belong," he said.

His comments reassured markets amid concern that Italy's new rulers planned to blow apart eurozone fiscal rules by splurging on welfare and cutting taxes.

The populist parties that hoisted him into office, the 5 Star Movement (5MS) and League, had also spoken of a euro-exit in their draft coalition accord, before dropping the idea.

Italy sold €5.63bn of sovereign bonds on Wednesday, with the yield on two-year bonds dropping below one percent on Savona's comments, compared to 2.73 percent two weeks ago.

The yield on 10-year bonds and the spread with German bonds also fell, the Reuters news agency reported.

Savona had previously been tipped to be finance minister, but his formerly radical views prompted the Italian president to veto that appointment.

His comments also came amid a clash on migration, which saw French leader Emmanuel Macron call Italy's interior minister Matteo Salvini "nauseating" for his decision to turn away a migrant boat, and which saw Italy accuse Macron of "hypocrisy" in return.

But Savona praised Macron's ideas on eurozone reform, which included a joint deposit guarantee scheme and a new EU bailout fund, despite the war of words on migrants.

He warned Germany's financial masters not to be "entrenched in their philosophy" of debt discipline and austerity.

But he said Macron was "playing a very important role … if we find a meeting point, we will re-launch Europe at large", he said.

Savona added that the European Central Bank should be given more leeway to play with interest rates on the model of the US Federal Reserve.

He also said Italy should be free to spend extra money "to guarantee growth and social well-being", in order to "respect" 5MS and League voters, "otherwise there will be a difficult situation in the European elections of 2019".

Savona described himself as "technician" who will carry out the government's instructions.

He also likened himself to Galileo, whom he said had been similarly accused of radical ideas that he did not espouse, and to Odysseus, who managed to sail home despite siren calls for him to abandon course.

Speaking to Italian press the same day, Salvini said euro rules ought to be changed but that he trusted Savona's point of view.

"The euro is an experiment born badly, with many difficulties. We want to change the EU rules to make Italians better off … [but] I esteem Savona so highly that I trust him", Salvini said.

Christoph Rieger, a strategist at German lender Commerzbank, told Reuters that the good vibrations caused by Savona's comments would not last long, however.

"Perhaps they are recognising that they can get more out of the EU if they at least commit to certain key principles," Rieger said on Italy's new leaders.

"In the longer term they need to do something different to bring the deficit under control, not just pay lip service toward the euro," he added.

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