Thursday, July 28, 2005

Berlusconi hits out at "Prodi's euro"

Things are hotting up in the Italian electoral campaign. Nothing is sacred any more, not even the euro.

Prime Minister Berlusconi announced to all and sundry that the euro, in his opinion, “screwed everybody”. By everybody he meant Italy, as his main complaint is that his chief rival, Romano Prodi, leader of the soft-left coalition, had negotiated bad terms for the country.

“There are categories of Italians which face difficulties because of the incursion of Prodi's euro,” – Berlusconi explained helpfully.

This is not the first serious criticism of the euro and its effects on the Italian and European economy. Back in June the Northern League demanded that Italy start looking at ways of leaving the currency but Berlusconi responded by stating firmly that it was not in Italy’s interest to do so.

The Northern League wants a referendum on the subject conjointly with next year’s elections but it seems unlikely that the Prime Minister will agree to anything like that.

Berlusconi has, in the past, blamed the euro for Italy’s economic problems and this particular statement seems more of a blast at Prodi than at the single currency. Still, it is another straw in the wind.

The comment did drive the euro down a bit but the biggest effect at the moment is the relative strength of the dollar.

Asked about Berlusconi’s statement, Commission spokesman, Michael Mann said at the daily press conference.
“We think the euro has not caused those problems and is an extremely good thing for Europe.”
While we could not possibly agree with the last part of that statement, we have to reiterate our previous comments on the subject. The euro has not, in itself, caused the problems, which lie deep in the structure of most European economies. On the other hand, having interest rates set for all the eurozone members does not help matters.

The biggest issue is psychological. The euro was going to solve the problems not exacerbate them. Even if it simply left things as they are, it would be perceived as a very bad thing as it did not produce the effect it was supposed to.

Of course, given that it was always a political project, another step on the path to European integration, its economic benefits could not be but minimal at best (and the best has not happened).

The problem for the euro-elite that drives the project is the time gap. Having promised economic benefits they have to point to them and there are none to point to. But the political integration that would have made the destruction of the single currency an impossibility is not happening nearly fast enough. Somewhere in that gap, the project might disintegrate and the people escape.

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