Italy and the euro. That lovely lira

The strange politics of attacking Europe's single currency

THE fallout from the French and Dutch referendums has reached as far as Italy. The Northern League, one of four main parties in Silvio Berlusconi's conservative coalition, has begun a campaign for a referendum on whether to reintroduce the Italian lira. Roberto Maroni, the welfare minister and a leading Leaguer, said on June 3rd that it would begin to collect the necessary signatures soon.

This is just the sort of attention-grabbing initiative typical of a movement that has invented a whole new territory (“Padania”, its term for the north). Yet most of the party's allies have distanced themselves from the wheeze. The European Central Bank's chief economist, Otmar Issing, said a return to the lira would be “economic suicide”.

Italy's adoption of the euro eased the servicing of its vast debt (over 100% of GDP), because it slashed interest costs. If it reintroduced the lira, a large part of what ministers would like to spend would have to be diverted to debt service, especially if markets feared that the lira's return was a harbinger of future devaluations. Mr Maroni initially suggested that this was just what he had in mind, though he later talked of linking a new lira to the dollar.

The League's idea, most economists and politicians agree, is not a serious one. But, although Mr Berlusconi has reproved the League for attacking President Carlo Azeglio Ciampi for his role in steering the country into the euro, he has not condemned the substance of its proposal. Nor has his finance minister, Domenico Siniscalco. Why not?

One reason is that the euro remains unpopular with Italians. They see it as having created a pretext for outrageous price increases and as a cause of the economy's dismal performance. That is wrong - Italy's problems are mostly home-grown - but it is a perception that Mr Berlusconi, who faces parliamentary elections next spring, has every interest in encouraging. The League's campaign helps to deflect the blame from his government and towards Brussels, which this week began proceedings against the Italian government for running an excessive budget deficit.

It also embarrasses the opposition, for the man who did more than anybody to get Italy into the euro is the present opposition leader, Romano Prodi, who was prime minister in 1996-98. Mr Berlusconi may choose not to jump on board the League's ill-conceived bandwagon, but nor is he rushing to stand in its way.

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