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The Italian populist government – a crisis still waiting to happen

By Michael Knox - posted Thursday, 7 June 2018

He notes that having given away these indispensable tools to the control of the European Union, the Italian economy refuses to recover. Savona presents the components of a Plan A (what to do to make the Euro function properly).

The Contents of Plan A

Savona suggests the following policies to allow the Euro to survive:


1. Assignment to the ECB of a Statute similar to that of the main central banks (Fed, BoE, BoJ, PBoC) with a dual objective (monetary stability and real growth) and free choice in the use of all the known instruments (loans to banks abroad and the Treasury), including the full operation as the lender of last resort function;

2. Assignment to the European Commission, under the supervision of the European Parliament, of a Common Financial Stabilisation Fund to accommodate the excess of national public debt compared to the Maastricht parameter of 60% of the public debt / GDP ratio on time and at cost countries that require to be part of it, in return for compliance with the zeroing of the public budget deficit introduced by the fiscal compact directive;

3. Full use of the European Investment Bank, as envisaged by the Maastricht Treaty, to finance infrastructure adaptation and development plans of European significance, with a section specifically dedicated to the elimination of structural duplication;

4. Complete fiscal harmonization to avoid the distorting effects on real growth and financial flows of the tax gaps, with the granting to the European Commission, under the supervision of the European Parliament, of the functional tasks for the elimination of income and employment growth gaps;

5. Introduction of the prohibition to maintain trade surpluses abroad beyond the agreed times and methods for their reabsorption;

6. Creation of a common European school at all levels and true free movement of persons within the Community.


The Contents of Plan B

Savona begins "I do not ask to leave the Euro, but be prepared to do so if the future of the country is compromised." He goes on "personally I am still convinced that the logical construction of a common European market, with a single currency is valid. In the current context of competition between densely populated areas". He says it is necessary to arrive at a supranational form of state. He says this condition was at the basis of the birth of the Euro.

But should Plan A fail, then Plan B for exit from the Euro must be provided. First it is necessary to immediately carry out an extraordinary operation to lengthen the maturities of public debt and reduce current and potential charges.

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This article was first published by Morgans.


The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

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