Grillo: talk about post-euro

Italian economic and political problems have become Europe’s problem as well. For this reason, I will start to provide an English translation of my significant posts.

It will have been because the number of participants, according to some, was below expectations, it will have been to cover internal dissensions, or it will have been to take back political initiative from Matteo Renzi’s sole control, Saturday at the Circus Maximus, Beppe Grillo decided to cross the Rubicon.
After speaking at length about a referendum on Italy leaving the euro, Grillo decided to make it the center of his autumn campaign. The idea is brilliant and potentially winning for the 5 Star Movement, while it’s risky and potentially disastrous for Italy.

For the 5 Star Movement it’s a potentially winning move. Italy is the Eurozone country with the weakest support for the euro. About half of the country is anti-euro, but this half does not have adequate political representation. So far, only the Northern League has been openly anti-euro, while the 5 Star Movement, after starting out strongly anti-euro, has fallen off a bit.
If, as I suspect, the situation in Europe continues to deteriorate, the appeal of these positions can only increase. So it’s a very attractive avenue for a politician seeking votes.
Making this avenue even more attractive is the transversality of those who are anti-euro: they are found on both the right and the left. The Northern League, allied with Marine Le Pen, has difficulty capturing the anti-euro left. The 5 Star Movement, which has always rejected the traditional right-left political axis, has a better chance.
Finally, this move is an exquisite political tactic. In politics, as in battle, opponents are attacked on ground where it is harder for them to counter. Grillo’s proposal nails the Democratic Party and Forza Italia to the cross of the euro, in a time when it’s becoming increasingly unpopular. The Democratic Party has always bet on the euro and will find it impossible to counter. Even Berlusconi, who has never loved the euro, has had a hard time arguing against it for fear of the economic consequences that an exit from the euro could have on his businesses. Grillo, therefore, has nailed his adversaries on an issue on which they cannot possibly counter, thus regaining the political initiative.
Unfortunately, the proposal is not as positive for Italy. The growth of the anti-euro campaign risks reintroducing Italian risk. Already in the last two months we have seen heavy capital outflow from our country. Talk of a possible exit from the euro can only increase this outflow. The possible effect is that a unilateral exit from the euro (today a remote possibility) will become a necessity under the pressure of capital flight. The Argentina case, which is described in my book Europa o No, is an unsettling specter.

So that Grillo’s proposal is not reduced to mere political tactics at the expense of the country, it is necessary for the 5 Star Movement to also advance proposals on two key points: how it plans to implement a unilateral exit from the euro and, more importantly, how it plans to manage monetary policy once Italy has left the euro.
Even if exiting the euro could bring temporary relief to our exports, it wouldn’t be able to solve the fundamental problems of our economy. Without an anchor to a stable currency, the country would be at grave risk of inflation (in Argentina this year it has exceeded 30%). The cost of public debt would rise, worsening our debt problem. Without structural reforms, our productivity, inert for 20 years, will not start growing again. How does Grillo plan to solve these problems?
The merit of Grillo’s initiative is to force not only our political class, but also that of Europe, to address the problem. In order to prevent it from becoming solely a political tactic at the expense of the country, however, Grillo must provide answers, and he must provide them soon.