Emboldened Salvini threatens collapse of the Euro with a new Italian currency

Eurosceptic Italian Deputy Prime Minister and Interior Minister Matteo Salvini announced, “I don’t govern a country on its knees” following significant wins for the Lega party in the European Parliament elections last week. Minister Salvini, who is widely seen as the true leader of the country, can force a national snap-election at any time but has ruled out early elections which would capitalise on the triumph as coalition government partner the 5-Star Movement had a poor showing in the parliamentary elections and its support is dramatically reduced at home in favour of Lega. Lega commands support from 40 percent of the country alongside the Eurosceptic Brothers of Italy, particularly in territories on the front line of migrant flows and left to fend for itself by Europe.

In the face of a European Union (EU) ultimatum, warning Italy that it is in breach of debt rules, Minister Salvini theatened to launch a “parallel currency” to rein in public spending and called for tax cuts. In an interview on Tuesday, Minister Salvini said, “Until unemployment falls to 5 percent, we have a right to invest. We have regions where youth unemployment is 50 percent. We need a Trump cure, an Orban cure, a positive fiscal shock to restart the country. Not everything all at once, but the goal is in the government contract.”

Italy faces 3.5 billion Euros in fines and has 48 hours to respond to the EU’s written notice. Lega chairman of Italy’s house budget committee Claudio Borghi said, “We’re not Greece. We are net contributors to the EU budget. We have a trade surplus and primary budget surplus. We don’t need anything from anybody. And we are in better shape than France.” He continued, “We have far more bargaining power. We know will be stiff resistance at every level but this time we intend to impose our line.

Emboldened by his EU Parliament victory, Minister Salvini is planning to push ahead with reducing Italian income taxes to a flat rate of 15 percent, which would cost 30 billion Euros and be funded in part by cutting other spending. Minister Salvini said he would reduce Italian unemployment from 10 percent to 5 percent by focusing on “the real economy” and not on the “old parameters” of the European budget deficit rules.

In an interview with Italy’s state broadcaster, Minister Salvini said, “The music has changed everywhere. In all of Europe, in France, in Finland, in London and Berlin it has changed.” Italy’s size and importance to the EU meant his desire to change fiscal policy should be respected by Brussels, he said, adding, “We are the second industrial nation of Europe, we are a founding member, we have a population of 60 million. We pay Europe, we are one of the net contributors, we send 6 billion Euros to Brussels in respect to what we get back every year.

Lega’s strategy is to offer EU leaders a choice: reform the EU treaties to enable fiscal expansion and allow the European Central Bank to act as lender-of-last-resort or face the consequences. In a streamed video on Facebook, Minister Salvini said, “I am going to ask the new European Parliament and the new European Commission for a grand European meeting to discuss work, growth, investment and about public debt. And about the role of the ECB as a guarantor of stability and wealth, and as the guarantor of debt. Are we all equal? Yes. I don’t understand why the bonds of Germany should be negative while the bonds of the Italian state should be costing us 2 percent.”

This autumn’s new EU Commission will see the political battle brought to the fore when Italy’s budget is sent to Brussels. Yet, Germany and the northern states have refused to rebuild the eurozone on viable foundations before the next global downturn hits and have rebuffed all proposals for EMU fiscal union and debt sharing.

The EU’s ultimatum has needlessly provoked the newly-triumphant leader of Europe’s second biggest manufacturing power. Former chief economist of the Italian treasury Lorenzo Codogno said EU leaders guaranteed the next Italian banking crisis last year when they cleared the way for easier sovereign debt restructuring, whereby there can be no further rescues by the eurozone bail-out fund (ESM) unless debt is deemed sustainable. “Other European countries are preparing for Italy’s default,” he says. The ECB may not legally buy Italy’s debt until the country requests a formal bail-out under stringent conditions, requiring a vote in the German Bundestag. This would entail a takeover of Rome by the European Commission, the European Central Bank, and the International Monetary Fund.