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Europe, Germany, Italy

Without a national currency there is no democracy

Enrico Grazzini explains how Italy can save itself from Euro death

Europe, and especially in Italy, is still struggling to understand the crucial value of money in the economy, politics and democracy. Unfortunately, the error is shared by much of the left. Everyone understands (at least apparently) that there is no political democracy without a democratic state, ie without state institutions guaranteeing democracy, and which respond to popular sovereignty. But few yet realize that a state cannot exist without a national currency. Here’s the syllogism: there is no democracy without a state; and there is a state without money. So there is no democracy if there is no national currency.

Unfortunately paradoxically only populist parties, and the chauvinistic and anti-democratic parties, seem to have understood this simple and incontrovertible truth.

The currency is the national community. From the economic point of view, the currency is the most concrete symbol of unity and strength, and also the well-being of a nation. Not surprisingly, the first thing that a nation does as it is born is create a national currency.

The Italian lira was our currency from the attainment of national unity, in 1862, until 2001. Since 2002, with the euro, Italy no longer has its own currency. And already from 1981 – when the government and the Central Bank divorced leading to the independence of the Bank of Italy, which could no longer absorb state debt by issuing currency – the Italian public debt has begun to depend on the financial markets.

Since then, the national debt has shot up due to high interest rates demanded by large institutional investors (especially foreign). Italy becomes ever more  indebted in a currency that does it does not issue or control, a foreign currency, the euro, which the state must buy by borrowing in the financial markets.

Due to the fact that the Italian government no longer has a currency, and it no longer has an independent central bank – which, in coordination with the government and democratically elected political institutions, may buy an unlimited government debt securities by “printing national money” – debt securities of the Italian state are now considered by Standard & Poor’s a grade above junk bonds, that is, at risk of failure and so demand higher interest payments. It is only with the cover, real and above all potential, of the European Central Bank (ECB) that Italian public debt is not irrevocably substandard, and still has relatively low yields – which are, however, already unsustainable, because they are higher than the Italian growth rate and the rate of inflation.

The American economy is represented by the dollar; that of China by remnimbi (literally: the money of the people). Their currencies will compete for the global primacy. Japan will never let go of the yen, Britain fiercely defends the pound, the former imperial India its rupee, Brazil the real, Russia the ruble, Israel the shekel, Sweden and Norway their crowns, etc. etc. Germany (apparently) ceded his mark to Europe only because it imposed in exchange that the euro and the ECB were based on similar criteria (or rather: almost identical, and perhaps even more stringent) than those that governed  the mark and the Bundesbank respectively. So it did not cede sovereignty: it extended it to Europe.

Instead the Italian state has ceded control of the currency to the German government: it is the German coalition government that sets the exams and marks the Italian rulers in economic policy. Angela Merkel and Sigmar Gabriel (the Chancellor and her Social Democrat deputy) give lessons of austerity to Italy to plug holes in our budget so that our country is able to repay their debts to the big foreign banks (German, French, Anglo-Saxon). Despite the enormous sacrifices, the Renzi government is ever more at risk of putting Italy under the direct control of the EU commission as happened to Greece. For Renzi it would be disaster, and for Italy a Greek tragedy.

Are we in a similar situation to South American countries? No, on a purely monetary status Italian is in a worse situation, because in South America states have national currencies, even if tied to a strong currency, the dollar. We don’t even have a national currency. Our currency is issued and regulated by the ECB that is not responsive to the Italian state. The largest shareholder of the ECB, it goes without saying, is the German government.

In many ways the situation is paradoxical. Its as if Inter officials were to coach AC Milan. As if heading Google were Apple executives. Would it be right that Merkel-Sigmar-Shauble were dictated to by Matteo Renzi and Pier Carlo Padoan, Italy’s minister of economy and finance? There is no reciprocity, but subordination of the Italian government (and the Italian people) to the white-pink German government. In the name of Europe. It goes without saying that with no national currency, indebted in a foreign currency, Italian citizens no longer have a say about their economy.

Without any monetary and credit sovereignty, national policy is little or nothing. If the monetary and economic policy is conditioned by big foreign finance, and is directed by the ECB and the EU, then the citizens conclude that it is (almost) useless to vote. Any government of any prime minister, Monti, Berlusconi, Letta and Renzi, will follow the same lines dictated from abroad. Anti-politics, indifference or blind protest spreads. If the opposition does not understand the roots of antipolitics and does not lead it, the drift can be very dangerous, in Italy and in Europe. The rapid success of Marine Le Pen in France, Nigel Farage UK and Matteo Salvini in Italy are dark alarm bells.

Only with (necessarily only partial) forms of national monetary sovereignty is it possible to escape the deadly embrace of the euro and Juncker’s Europe of the euro. Hence the Keynesian proposal drafted by Biagio Bossone, Marco Cattaneo, Luciano Gallino, Stefano Sylos Labini and myself to introduce a new state / fiscal currency parallel to the euro (but still inside the euro) to overcome the liquidity trap (1).

The Italian economy will struggle to recover, and Italian democracy struggle to survive, without new forms of sovereignty and national autonomy. Without any control over money and credit, the state no longer has any possibility of conducting independent policies – not only budgetary, but also on welfare and investment in infrastructure and industrial policy.

The currency is the blood of the economy, it brings oxygen and life. If money does not circulate – and today it does not circulate – because banks restrict credit, the economy dies and employment falls, and you enter easily into recession. Commercial banks create 95% of the money, via credit. But banks decrease loans when the economy is struggling (2). If money does not flow and becomes an increasingly rare and precious commodity, everyone is trying to keep it to himself and to save it; if the currency does not circulate, prices collapse and everyone delays spending and consumption. It is a liquidity trap,  the deflationary process so well described and studied by John Maynard Keynes.  In response, the state should intervene to introduce a new currency.

The ECB continually announces new and extraordinary measures to fight deflation. But Germany and other creditor countries of northern Europe are opposed to all forms of cooperation: so the ECB is essentially paralyzed. The quantitative easing (QE) that the ECB announced, maybe it will happen in 2015 but it will be insufficient (too late and too little) to take us out of the crisis, because it consists of the purchase by the ECB of government bonds held by banks, insurance companies, etc. It is uncertain whether money will really find its way into the real economy. Indeed, only some of it will arrive. Until consumption revives, until jobs start being created, there will be no investment and recovery.

The ECB, led by a sort of board of directors appointed by the governments, decides and will decide the future of Europe. What is democratic in that? The ECB is formally a private institution whose capital includes the central banks of the 18 eurozone countries: the major shareholders are Germany (18%), France (14%), Italy (12%) and Spain (9%). In practice, the leading bodies are appointed by governments, even if they are formally independent. And Germany has an overwhelming role. In short, Italy no longer has its own currency and counts for little in monetary policy decisions.

Largely for this reason Italy is crumbling. Our country is unfortunately crumbling in the name of a Europe that does not exist as a democracy and even as a state, but rather exists as the euro, as a foreign currency, and as a debt to big business, to the big foreign banks, well represented in the EU by  Commission President Jean-Claude Juncker.

Democracy and national economy are at risk

Italian democracy is at risk for many reasons. Political scientists highlight many evils: a largely corrupt political class (but not all); catch-all parties without ideals and ideologies but based on the exclusive leadership of one person (Berlusconi, Renzi, Grillo, etc.); public institutions governed almost always without transparent criteria and without democracy, often by bad politicians, bureaucrats obtuse or clienteles of power; large scale economic and mafia crime; conflict of interest between media power (Berlusconi), finance (Berlusconi) and politics (Berlusconi); media that is not independent but dependent on the banks and the powers that be; unions that are passive and largely accomplices of the government; civil society that is not sufficiently active, independent and organized; medium-low level of education of the population; high average age and therefore little interest in active politics; absurd and even criminal management of immigration without integration. Etcetera, etcetera, etcetera.

But paradoxically, none of the political scientists realize that one of the major ills of Italian politics is that … we no longer have our own currency! Our monetary and economic policy is decided abroad, in Frankfurt and Berlin.

The Italian economy is slipping dangerously. Fiat is now a US company headquartered in the Netherlands, registered for tax purposes in the UK with its real centre in the US. Mediobanca is selling strategic investments to the highest bidder; two other major banks, MPS and Unicredit, are increasingly dependent on foreign partners. There are only a few national besieged garrisons (state savings bank Cassa Depositi Prestiti, our banking foundations, energy companies ENEL, ENI, etc.). They are almost all state-owned companies or listed under state control, and at risk of privatization and colonization by foreign capital.

The Italian capitalism of medium-sized companies, active in international markets, is asphyxiating for lack of credit, or forced to go abroad where it find money and markets. Italy is in agony. The numbers are dramatic. 11% fall in GDP since the crisis to date; industrial production down by 25%;  over 13% unemployment; half our young people without jobs, 2.1 trillion euros of government debt, and growing. A total disaster!

With Banking Union, the Italian state will no longer have any chance of conducting a credit policy. It will become impossible to finance growth with domestic savings and domestic banks. The Italian economy will be managed by large supranational – “too big to fail” – banks under the control of the ECB.

The problem of the euro is not just one for the popular classes and the middle classes, but the future of our nation, of Italian capitalism and national leadership. The euro – which has a fixed exchange rate regime for which it is impossible to conduct external devaluation – imposes so-called internal devaluation, but this is not just about jobs but also the capital. The euro is a national problem. National capital is worth less and less. The single currency stifles Italian capitalism and domestic industry. It can only benefit a few giant firms and banks that fund themselves abroad. It is no coincidence that Il Sole 24 Ore, the newspaper of Confindustria, is often more critical about the euro and the EU than Il Manifesto, the newspaper of the radical (but pro-European) left.

A state currency to nationalize the debt

As a common good, a currency should be created and managed by the national community. And the state, as the representative of the national community, should have the primary role in issuing and managing the currency. Instead we see the paradox that the state submits to a foreign currency and the financial market operated mainly by fifteen enormous investment banks, hedge funds, private pension funds, etc., etc.

The new fiscal currency that we propose solves a twofold problem: on the one hand it would be created independently by the Italian state, which then would escape the domain of the EU; on the other hand, precisely because it is issued by the state and not by lenders (who do not issue credit), it will remove the Italian economy from the dominance of the banks and the impotence of the ECB in managing the liquidity trap. A new currency issued by the state would restore, on the one hand, a portion of national sovereignty vis-à-vis the EU and, on the other, sovereignty in policy terms, with respect to large institutional investors, the ” too-big-to-fail” banks.

Take, for example, Japan: the Japanese central bank issues its own currency and its debt is at least two times the Italian one, at 260% of GDP, but it is issued in national currency and is held almost exclusively by Japanese citizens. A state that borrows in national currency can never fail; and a state that borrows from its citizens does not have to pay the high interest rates in financial markets. In Japan the rate for ten-year government bonds is less than 0.5%. One should then follow this positive example out of the crisis.

Leaving the euro is currently impractical

To re-establish Europe, namely, to rebuild democratic forms, flexible and effective European cooperation – and not build the United States of Europe, which are a foolish illusion that clashes with reality and history – we must overcome Maastricht, the treaty that founded the single currency and the ECB. And thus overcome the source of the European disaster, the devastating economic crisis, the hollowing out of national democracies, the crisis of national sovereignty and the domination of big business over the real economy, over workers and over industry. A single currency in a Europe that is ever more divided does not make sense.

The problem is that exiting from the euro is like forcing toothpaste back into the tube. The referendum on the euro proposed by Beppe Grillo’s Five Star Movement, if it comes to pass and is feasible from a legal point of view, is welcome because finally we will have a debate among the Italian population about the damage and the benefits of the single currency. But the unilateral exit from the euro will almost certainly cause more damage than good.

You cannot exit from the euro unilaterally without untold damage. The euro is in fact the second world reserve currency held by China, India, Russia, etc; and then we would be up against the most powerful countries of the planet. Private contracts with foreign litigation would know no end. Furthermore, much of the Italian population (about half according to the polls) would be against it, fearing for their savings (3).

A managed exit from the euro is at this stage a beautiful intellectual illusion, (as if it were so easy!) but has no chance of occurring. The euro will never dissolve in a concerted manner following a peaceful discussion among European governments.

The governments of southern Europe will struggle to ally in order to withdraw from the euro, since they are constantly under attack by the international markets. It is, however, unlikely that Europe can continue to destroy its  economy. The euro is a fragile construction that causes economic depression and that the first winds of crisis might collapse disastrously, causing the global financial chaos.

Many economists would like to see a new, European, Bretton Woods comes up with a reform of the euro, with or without Germany (4). The initiative is laudable in the abstract, and, as the appeals against austerity, from the economists in the Financial Times (5), or by the economists that in Sbilanciamoci.info, they have the great merit of drawing attention to the suicidal and counterproductive policies of the EU. But they are not ineffective in practical terms because they assume that this EU is willing and able to come to its senses and reform.

Proposals for a “moderate reformism” in Europe have unfortunately proved useless. They assume that governments will decide to get rid of the protection of Germany and the EU and will be able in some way to reform the euro. But it is unrealistic to believe that European governments are able to act in a concerted manner to resolve the crisis. It is a policy of inaction, and illusory. Relying on the initiative of Europe and European governments to try to rescue themselves is as if the hanged tries to escape his fate by tightening the noose around his neck.

After years of crisis, we should have realized that if the EU and Germany are insisting on austerity, a balanced budget, the Fiscal Compact and the “structural reforms”, privatization and cutting welfare, it is because they do not want change. It will not be the intellectuals of the left or right or centre to make them change their minds.

Unfortunately, we cannot expect anything from European political leaders other than the continuation of the crisis. Hoping for the possibility that the European Union and governments to get us out of this perpetual crisis is political naivity. Mostly it underestimates the value and potential of a national autonomous action and democracy from below. It is the Italian people and public opinion that, with their cry of pain, with protests and the vote, should and could push the political parties, parliament and the government to find an autonomous path to salvation, and urgently.

A fiscal currency in favour of the real economy

If we want to get out of the crisis, we must create a parallel currency to the euro: introduce a new currency into the euro system, but which also goes beyond the euro. Even to partially restore monetary sovereignty is a necessary condition (though not sufficient) to kick start the economy and save democracy, besieged by the international institutions that no one has elected (EU Commission, ECB, IMF).

Often major intellectual apologists of united Europe or the European Federation (?), such as Jurgen Habermas, Thomas Piketty, Etienne Balibar, accuse people of wanting to regress towards nationalism. But they do not realize that democracy is still present and strong, and is still possible (though mutilated and suffering) within national borders. But there is, to the contrary, no democracy in Brussels and in the European Commission. The European Parliament has little or nothing compared to government and private lobbies (6).

Why should nations surrender Europe the euro? Europe had to ensure well-being, equality, democracy; but it has blatantly betrayed every social and democratic perspective. Why still support this unreformable Europe? It should be re-founded on the basis of radically different cooperation that is still respectful of national sovereignty. Today’s Europe has weakened, not strengthened us, including economically-speaking.

It is urgent to introduce a new national currency to enable us to emerge from the tunnel into which we have been chased, and then re-discuss at European level, possibly from a position of strength, the whole architecture of the euro, and above all Maastricht.

How do you start a national monetary reform imposed democratically from below? The only area in which the nation state still has a certain level of autonomy is taxation. To exit the crisis and the liquidity trap we propose boosting demand by issuing, free, from the Italian state Tax Credit Certificates (Certificati di Credito Fiscale, CCF). Italy could create, without formally violating treaties, a fiscal currency, the Tax Credit Certificates for deferred use. The CCF should be used within two years after their issue to pay taxes and anything else owed to the government and the public administration: social contributions, bills, fines, etc. But it could work immediately as a means of payment within national borders.

In this way, the state would create a national “quasi currency”, parallel to the euro, with the aim of increasing the spending power of the economy without creating new debt. The new instrument created by the State would alleviate the tax burden and increase the purchasing power without generating new public debt. In fact, due to the income multiplier, the decline in government revenues linked to the deferred tax income (via the CCF) would be more than offset by higher tax revenues produced by the strong recovery of GDP.

The state should issue the fiscal currency for up to 200 billion euros. It should distribute it free to enterprises (80 billion) to restore their competitiveness abroad; to workers (70 billion) to support their income and consumption, and in favour of public initiatives (50 billion) to promote local public works, a guaranteed income, the development of research and employment for young people and women.

The fiscal currency could boost the economy and jobs, raise GDP, cancel public deficits and rapidly cut the public debt. The spectre of default of the Italian state would recede. We could pay our foreign debts and international investors could finally see their loans guaranteed.

So we could paradoxically witness a curious result. The financial markets, the major international investment banks may approve the spread of the new state / fiscal currency, saving them from a chain reaction of giant bankruptcies. But the European Union may instead oppose the initiative because the currency tax, by recovering national sovereignty, would take away much of the power intergovernmental institutions have acquired in the vacuum of European democracy.


[1] Micromega on line Marco Cattaneo, Enrico Grazzini, “Oltre l’euro, dentro l’euro: una nuova moneta fiscale per vincere la crisi”

[2] Idem

[3] Micromega on line, Enrico Grazzini, “L’Italia può uscire dall’euro? Problemi e difficili soluzioni”

[4] Micromega on line “L’Italia chieda una ‘Bretton Woods’ per l’eurozona”

[5] Financial Times “The Economists’ Warning”, 23 September 2013

[6] Micromega on line Enrico Grazzini “Sinistra svegliati, la casa europea brucia”


Translation By Revolting Europe

About revoltingeurope

Writer on Europe's Left, trade union and social movements @tomgilltweets or @revoltingeurope


One thought on “Without a national currency there is no democracy

  1. The UK has it’s own currency. We have large debts. Banks print money. We have limited democracy. I think the problem in Italy is more than a currency problem. Global capitalism is rampant and many of our companies are controlled/owned by multi nationals that pay scant regard to our currency.

    Posted by pwest9 | December 21, 2014, 10:52 pm

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