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Last Updated: Monday, 6 June, 2005, 20:54 GMT 21:54 UK
Italy minister seeks lira return

By Evan Davis
BBC Economics editor

A second minister in Italy's government coalition has cast doubt on Italy keeping the euro, and called for the return of the lira.

Reforms Minister Roberto Calderoli, a member of the eurosceptic Northern League, said the euro had failed.

It follows Friday's call by another Northern League minister for a referendum on whether Italy should leave the eurozone.

Political opponents have accused them of populist electioneering.

Challenges

Italy's Northern League party is in the government but it does not always speak for the government - and its position on the euro reflects that.

Pasta shaped in the form of the euro sign in a shop window in Bologna, 2002
The euro is facing its most testing period
The party's talk of abandoning the currency is not official policy nor is it close to becoming so.

Foreign Minister Giafranco Fini said the idea lacked any credibility.

But, with the country in recession, the euro is facing its most testing period and the mere fact that a populist party has selected the currency as its issue of the moment, is a bad sign.

Talk of a euro break up is destabilising, even if most of the official words on the subject have simply been to dismiss the suggestion.

As it happens, for Italy to leave the euro unilaterally, would provide formidable challenges to the country.

Desired outcome

In the likely event that most people would prefer to keep their euros, rather than to convert them into new lira, money would flow out of Italian banks into the rest of Europe. The banking system could expect to suffer badly.

Switching out of the euro would be harder than it was to switch in.

The negative talk about the currency is having one beneficial effect though - the currency is falling in foreign exchange markets.

That will help promote exports and stimulate the European economies. Which is precisely the outcome for which European politicians have been calling.


SEE ALSO:
Call of duty for Germany's mark
02 Jun 05 |  Business
Euro report whips up German storm
01 Jun 05 |  Business


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