Single currency and inflation differentials: in 1999 Prodi predicted the Italian disaster
We offer you a piece written by Canale Sovranista who found a gem, an interview with Romano Prodi in which he predicted Italy's woes in the Euro, obviously without being able to either backtrack or find solutions to the problem.
Here is the original article :
Same currency for everyone but different economic results, especially for the key objective of the "euro system" i.e. price stability. Before analyzing over twenty years of inflation data, let's start with a statement by Romano Prodi dated 21 June 1999 and published by Radio Radicale .
Here is the audio extract (min 6:12 – 8:17) and the related transcription, enjoy listening and/or reading.
Yesterday Padoa Schioppa wrote an article in the Corriere in which, among other extremely wise things, he added one. He says: we had very low inflation last year, only 2%, but our European competitors had an average of 1%.
Be careful if we continue to move forward like this over time, our costs , in a few years, will diverge from those of other European countries and we will NO LONGER be able to stay in the Euro!
These are extremely elementary reflections, not to be taken in a distressing way because we have time, but very great! It is clear that even just one point of divergence per year is a tragedy , if it lasts over time.
So we must be extremely attentive to a recovery in productivity, to put the whole society in tension to make this happen. Otherwise, in 3 or 4 years we will find that Italy will become a place of escape , because the costs will no longer hold.
That is, we entered the euro in very good, calm conditions, I would say with a decent exchange rate, right? After all. But if we lose one point of competitiveness per year, in a few years we are FRIED , truly we are FRIED.
This is why the euro problem is a great challenge, it is a great opportunity, it is a great opportunity. BUT if we do not change RADICALLY, if we do not change radically, evidently the discussion of the Euro becomes a discussion which , instead of our great opportunity, can also become our CONDEMNATION .
I repeat, we have time, we just need to realize it quickly, that we must behave in a more "virtuous" way than everyone else, but we absolutely must do it . These are the reflections that concern Italy and Europe.
In conditions of full monetary sovereignty, the recovery of competitiveness towards our competitors (not partners) would have occurred through the adjustment of the exchange rate , i.e. a devaluation . But having the same currency this can no longer be done.
Prodi was perfectly aware of this and that in the long run, this would send us into crisis, or rather into " condemnation ". Yet another demonstration, if any were needed, of the bad faith of those who brought us into this cage.
INFLATION DATA
Here, as promised, is the evolution of annual harmonized inflation (HICP), which is the best for international comparisons, taking 1996 as a starting point, i.e. the return to the EMS (European monetary system) which took place during the Prodi government.
Taking the first four economies of the Eurozone, it is clear that Spain and Italy are immediately losing competitiveness compared to France and Germany. From 2005 to today, Italy's additional inflation compared to Germany varied between 9% and 15.5% (2012), and was 9.9% in 2022.
Those were the "cumulative" data, let's now see the averages divided by period : the return to the EMS and the preparation of the actual launch (1997-2001); the legal tender of the euro and before the subprime crisis (2002-2007); the double-dip recession (2008-2013); the slow recovery (2014-2019) and finally the present day of the pandemic and energy crises (2020-2022).
Here too it is clear that, in the medium term, Italy and Spain were clearly disadvantaged compared to France and Germany. All this took its toll in the 2012-13 crisis, with unemployment in peripheral countries reaching "heights" never experienced before.
And so it was that "thanks" (so to speak) to millions of unemployed, the Italian and Spanish inflation differentials finally became lower than the French and German ones, as seen in the 2014-19 period. It is well known that the spending capacity of those who are unemployed borders on zero and inflation therefore adjusts downwards.
In more recent times, Germany continues to have the highest average inflation, but the road to recovering lost competitiveness is still very long. Again in the last three years, France has fared better than its "competitors", given that it is more independent from the point of view of energy autonomy.
HOW RIGHTS WERE “FRIED”
The last consideration is regarding the " radical changes ", because during the first Prodi government the season of " casualisation " was kicked off with the Treu package of 1997. Others followed – the best known are: Biagi Law, Fornero Law and Jobs Act – with what results today?
That only 60% of employed people can be defined as "standard" , i.e. full-time permanent workers or independent workers with dependents. ISTAT certified this in one of its recent podcasts . For the remaining 40% they "get by" and this also ensures "price stability".
In short, after more than 20 years we can clarify that the " euro problem " was " our condemnation ". And what should Romano Prodi say on television in 2023? Which was a “ servant of the European Union ” (video below).
Now do you understand why the single currency "had to be created" against all evidence? Because we had a political class of servants, one of which was proud of it…
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The article Single currency and inflation differentials: in 1999 Prodi predicted the Italian disaster comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/moneta-unica-e-differenziali-di-inflazione-nel-1999-prodi-prevedeva-il-disastro-italiano/ on Tue, 31 Oct 2023 20:49:08 +0000.