Here comes the flood. My worst fears of The League’s leader Matteo Salvini’s ego getting in the way of seizing the political moment by the horns were overblown. It feels good to be wrong every once in a while. It looks like coalition talks between The League and Five Star Movement (MS5) have been productive. A new post from Mike “Mish” Shedlock reveals the likely structure of a new parliamentary deal which has neither Salvini nor M5S’s Luigi Di Maio taking the role of Prime Minister.
From Mish the Platform contains:
The end of the pension reforms under Mario Monti; Five Star is softer on this point than Lega, but together the two parties can be expected to agree fundamental changes.
A flat tax on companies and people – in other words a massive tax reduction.
A study on the so-called minibot. This is a parallel currency based on future tax receipts, similar to the plans proposed by Yanis Varoufakis in Greece. The minibot was in the Lega’s election manifesto. Five Star is far less radical on the eurozone, having dropped the idea of a referendum, but also seeks changes that are incompatible with the the EU fiscal rules. A parallel currency stands a much greater chance of success in Italy, and it would go some way to solving the government’s fiscal dilemmas. The open question is whether it would constitute a slippery slope towards euro exit.
And a citizens’ income, which is Five Star’s big idea, to be implemented next year.
Because M5S and The League are so fundamentally different this platform is going to be schizophrenic. Basic Income is idiotic, especially with a radical tax reduction. But, it’s the price to getting the deal done.
The most important part of this deal is the realization on both sides that leaving the euro is not politically viable in the near term.
Believe me, I wish it were otherwise. M5S was smart to soften its stance to get the votes.
Just look at places like Hungary, Austria, the Czech Republic and Russia. Viktor Orban and Vladimir Putin have provided the blueprint for how to consolidate power in response to irresponsible immigration policy.
Now look at Italy. The League and M5S can form a lasting partnership if they present a fully-united front to Brussels on this issue. And by being opposed on certain issues it presents an honest face to the people that Italy comes first and from there we can sort out the other problems.
Parallel Goals Salvini knows the euro is killing Italy slowly. So did M5S’s former leader Beppe Grillo. Both parties want out of the euro but for different reasons. The Jury is out on Di Maio.
And in the long-run, absent a shift in political philosophy, this coalition will be, at best, difficult to hold together. But a study on a parallel currency is the Goldilocks path on the other pressing issue to Make Italy Great Again.
Creating an internal domestic currency to run the country on while settling cross-border payments in euros is the means by which to prove to the people what the euro has done to them. And, any opposition to this plan from Brussels will be seen as yet another way to subjugate Italians a la immigration.
Build the opposition to the euro over time while capitalizing on the anger at the EU now.
Two birds, one stone.
By having this in their back pocket Salvini and Di Maio can present a stronger front to the EU over debt relief and gaining some much-needed fiscal wiggle room. The flat income tax proposal is a brilliant move. If done right will lower taxes, cut bureaucracy and introduce new efficiencies to the Italian economy currently stifled by what I like to call “German Austerity.”
Austerity is what we Austrian economists preach: lower taxes, less government spending, fewer regulations. Also, hold monetary policy as neutral as possible and let the currency do what it’s going to do to balance the government’s books.
German Austerity is higher taxes to balance the budget, lowered spending and a strong euro. The latter benefits Germany, under-pricing German labor and over- pricing the vassal state’s. This keeps that country trapped through high debt servicing costs, never paying off its bills.
Eventually, it sells to Germany its tangible assets at stink bid prices and while rolling the debt out farther in time, c.f. Greece.