Italy's New Currency
These days those of you owning property in
Italy must be wondering what the heck is going on. Well,
things are getting hotter by the day. In case you aren't up to
date on how things are progressing in Rome, let me fill you
The farce that is the EU is getting more and more fun as the
days go by. The latest update that reached my desk is the
Way back when I was a student I studied, among other things,
economic history, and learned all about John Law, who came to
the rescue of the French, whose financial system was in a
mess. He had this great idea, which the French government
embraced with alacrity. A year later the country effectively
The Italians have clearly also been studying the economic woes
of their neighbour, and have spotted a way in which the John
Law solution to all economic ills could be used to their
First, a little bit of bad news from Rome. The government owes
its contractors 53 billion euros, and naturally they don't
have any euros to pay those debts.
Let me stress that number. It is billions not millions. That
is one heck of a lot of money to owe your suppliers.
What this means is that not only is the government broke, but
all those suppliers are going broke as well.
What to do? They can't devalue as they are part of the
eurozone. They can't borrow because no-one wants to lend to a
country that has no way of repaying any loans. The ECB is
sticking its heels in, and the Germans are adamant that things
are rapidly approaching the stage where they are talking about
one bailout too many. Enter the man who smashed the French
Here's the scheme, which failed spectacularly to work last
The government has no money to pay people so it will issue
IOU's. Okay, we all know that modern fiat currencies are not
backed by anything, and so all currency notes are effectively
IOU's already. Actually the euro isn't even that. At least the
Bank of England has the decency to say something about
promising to pay the bearer of a sterling currency note the
value printed on the face of that note. However, you trying
swapping a twenty pound note for some gold. You won't get it.
But now look at a euro note. The ECB doesn't even bother to
promise you real money.
But perhaps I digress.
Following the John Law plan from way back, the Italian
government plans to issue loan notes and pay its contractors
with what are effectively IOUs. No-one in their right mind
would accept such notes, but there is an incentive. You will
be able to use the IOUs as currency, and can even pay your
taxes using these notes. Wow.
You will then have an illegal situation in Italy, where there
will effectively be two currencies circulating; euros, and
government loan notes.
Of course the loan notes will never be redeemed, in much the
same way that fiat currency notes are never redeemed. So where
is this likely to lead?
The government will issue the notes. People will have to start
using them otherwise they will have no value at all. The
country will then have a dual currency system.
Let's now fast forward a year or so, and one day, probably at
ten p.m. on a friday evening, the government will stop using
the euro. They will already have the loan notes in circulation
as effective currency. Those holding euros will probably still
be able to use them in Italy, but the official currency will
now be the loan notes which will be promptly devalued, thus
(hopefully) solving Italy's financial strait jacket.
Don't we live in wonderful times? I love it. It's better,
though probably in the same vein, than listening to an old
The really intriguing thing is, the plan might actually work
and get Italy out of its present fix. The Brussels mandarins
will be extremely unhappy, the euro will start gyrating about
like nobody's business, and we will all be waiting to see what
further idiocy will follow. Honestly, you couldn't make up
this sort of story-line. No-one would take you seriously.
The really bad news is that those mandarins in Brussels don't
have a sense of humour.
But from my readers' point of view, this is likely to impact
on anyone who owns property in Italy.
Do I have any suggestions?
Sorry, this is surreal. When the game gets surreal, anything