Exonerating Euros: Facing Italy's Economic Problem
Sharp, Nathan, Harvard International Review
During the initial discussions over the currency now known as the euro, Italy jumped at the opportunity to drop the lira in favor of a common European currency. Italians even willingly accepted the burden of new taxes necessary to cut their budget deficit from 11 percent in 1990 to under three percent in 1997, a prerequisite to inclusion in the euro zone. Now, however, Italian consumers, businessmen, and politicians openly bemoan their decision to exchange the lira for a currency they believe has made them poorer and less competitive in the global market. But the euro is only partially responsible for their economic woes. In reality, Italy's economic struggles are rooted in internal problems that are much deeper than what businesses suggest and what politicians are willing to address.
More and more, Italian politicians are distracting the public from the necessity of internal economic improvement by criticizing the euro. Prominent government officials, including Welfare Minister Roberto Maroni and Reforms Minister Roberto Calderlori, called for a referendum to discuss the reintroduction of the lira in early June 2005, flirting with the idea of pegging it to the US dollar. Even Umberto Bossi, the leader of the right-wing Northern League, returned to the political scene after over a year of health-related inaction to demand a return to the lira. Rossano Soldini, the head of the National Association of Italian Shoe Manufacturers, spoke for the majority of Italian business heads in textiles, furniture, and footwear when he expressed nostalgia for the lira. He accused the euro of leaving Italian manufacturers without the ability to compete with their Asian counterparts. Italian consumers are also feeling the effects of their lost spending power, although the euro assumes only partial blame and unions are well aware that wages are not keeping up with prices.
Such demands come in response to Italy's current economic slump, one that is only expected to worsen. The Organisation for Economic Cooperation and Development (OECD) predicts that Italy's economy will shrink by another six percent in 2005. In addition to this economic slump, Italy's economy is under the control of cartels. Before the euro, many producers were able to combine and dominate certain markets in Italy, enabling them to set prices and crowd out competition. Though the Italian cartel office is reducing the reach of these dominant firms, cartels continue to prevent the Italian economy from exploiting competitive advantage in the euro zone and flourishing under the euro.
In condemning the euro, Italians are not without justification. Because the euro has dramatically appreciated against the US dollar, Italian manufacturers are losing their hold on the US markets they traditionally dominate, especially the shoe and clothing industry. …