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Five Star Lega Deal Takes Shape: Platform Includes Parallel Currency

Five Star and Lega want another three days to conclude talks. Neither Di Maio nor Salvini would be Prime Minister.

A reader informed me yesterday that Five Star was pro-Europe and not Eurosceptic.

Compared to what?

Certainly Five Star leader Luigi Di Maio is a far cry from former Five Star leader, Beppe Grillo. But some of that change in positioning was little more than political expediency to win votes.

The platform now in the works includes a parallel currency, reduced immigration, and flat taxes.

Eurointelligence Comments

This is what real coalition negotiations look like. The leaders meet and set the agenda for sub-committees to talk about specific policy issues. That process will start in Italy tomorrow, when the deputy leaders of the two parties come together, but some of the outlines have already been drawn up by the leaders themselves.

What do we know so far? Five Star and Lega are very different political parties, but they have enough in common for a radical legislative agenda. The two sides seem to be inching towards a neutral prime minister, in other words neither Di Maio nor Salvini. The name mentioned by Italian newspapers this morning is that of Giampiero Massolo, a career diplomat who seems to be acceptable to both parties. Massolo will clearly only be the frontman. Power will rest with Di Maio and Salvini.

It will be interesting to see how the two sides will legislate together on issues that might affect Silvio Berlusconi personally. We don’t think he accepted to step aside and let Salvini run the show himself without any clandestine conditions. Any undertaking Salvini might have given him would be difficult for Five Star politically, though.

Corriere della Sera lists the following as the main legislative priorities. If implemented it would be the biggest shake-up of the Italian economic system in modern times.

Platform Provisions

  • 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.

EU's Worst Nightmare

One of the first things the two parties are likely to agree on will be to scrap a 2011 pension reform which raised the retirement age and required further hikes over time. Economists say repealing the law would cost 20 billion euros ($24 billion) a year, but opponents say it is unfair on ordinary Italians.

Both parties also want to renegotiate the EU's fiscal rules to allow Italy to spend more. 5-Star has rowed back on a pledge to hold a referendum on Italy's membership of the eurozone, but the League still calls the euro a "flawed currency" and wants to exit it as soon as is politically feasible.

Setting up a possible institutional clash in Italy, President Mattarella made clear on Thursday that he did not want to see any confrontation with Brussels.

"To think that one can go-it-alone in Europe is knowingly deceptive in front of public opinion," Mattarella said in a pointedly pro-European speech at a conference on the state of the European Union in the central town of Fiesole.

Major Changes

President Mattarella can make all the pro-Europe noises he wants, but other than force new elections which would likely give Five Star and Lega a bigger majority, there is little he can do.

Major changes are coming but there is no way to pay for them.

Flat taxes and a tax reduction are good ideas. A guaranteed income is a bad idea, but it's on the way.

Both parties are staunchly anti-immigration.

A parallel currency is indeed a stepping stone to a break from the Eurozone.

Flashback March 1

I do not believe anyone else suggested this outcome: Italy Election March 4: Consider a Surprise M5S + NL Alliance.

In March, many thought I was crazy.

Mike "Mish" Shedlock

If the basic income is given to all Italian citizens regardless of age at €780/month, it will cost €567 billion per year.

Total "social expenditure" in Italy in 2016 was €535 billion.

Now we know where M5S number comes from. Assuming they get rid of all currently existing social expenditure programs, they "can" pay for the basic income. (Just like they "can" pay for it all now)

OECD definition of social expenditure: Old age, Survivors, Incapacity-related benefits, Health, Family, Active labor market programmes, Unemployment, Housing, and Other social policy areas.

I don't think the Italians alone can unilaterally go to a Gold standard and make it work...or stick. They'll inevitably encounter the same thing Winston Churchill did in putting Britain back on Gold in 1925: Over time, everyone else will simply devalue just enough against you to enable themselves to export their unemployment to you, AKA, a currency race-to-the-bottom, which China now leads. Keynes argued against Churchill at the time precisely for that reason I.e., Churchill's proposal to go back on gold at $4.86 would disadvantage UK coal miners.

The beauty of a “citizen’s salary” is specifically that it offers: The most efficient way around the popular objection of “we can’t just let them starve.”, out of all possible “social programs.” In a free world, there would exist no government powerful enough to compel anyone to pay anyone else. So yes, compared to that, a citizen’s salary is an obviously inefficient overreach.

But compared to the lunacy that is “social programs” across every country implementing them today, the score is completely reversed. Today, a large and ever growing, share of spending on social programs go not to people who ostensibly “need” them, but instead to (who could have predicted….) those who administer them, and those who “finance” them. While “the needy” who do receive the few bread crumbs left over, have the net utility they get out of the programs, massively reduced by having to spend massive effort on pointless signaling activities to get them to “qualify.” Meaning, give blowjobs to taxfeeders.

Leisure is an economic good. This was recognized by even the earliest economists. And has only been conveniently forgotten once economics stopped being economics in favor of being excuse-making-for-totalitarian-halfwits-and-their-rent-seeking-hangers-on. Giving someone $700 for doing nothing, provides more value than giving him $700 only if he engages in negative utility activities, like pretending to do mindless “make-work” for a bunch of nothings, or spends his days pretending to qualify for some “acceptable reason” to get the handout. As if a bunch of taxfeeders are in any position to determine acceptable reasons, nor anything else, in the first place…

If all you end up doing, is adding a citizen’s salary on top of the existing, unchanged pyramid of unbridled waste, then yes, it’s inevitably a bad thing. But if, as is more likely, the presence of a universal income sharpens the minds of enough saps to make them less likely to be suckered into voting for yet another taxfeeder fiefdom-enlargement scheme camouflaging as a “necessity,” then it’s a good thing.

“No, no no, Schemester McScam. Noone will starve in the streets even without your harebrained program of hiring your relatives for high paying public sector ‘jobs,’ paid for by bonds issued through your Golf pals at Goldman Sachs….. Everyone already has plenty enough for food and a roof over their heads. After all, those two have been solved problems for at least a century or more by now. Despite you and your rent seeking buddies’ best efforts to the contrary…”

“I don't think the Italians alone can unilaterally go to a Gold standard and make it work...or stick. They'll inevitably encounter the same thing Winston Churchill did in putting Britain back on Gold in 1925: Over time, everyone else will simply devalue just enough against you to enable themselves to export their unemployment to you, AKA, a currency race-to-the-bottom, which China now leads. Keynes argued against Churchill at the time precisely for that reason I.e., Churchill's proposal to go back on gold at $4.86 would disadvantage UK coal miners.”

The only way this works as even a theoretical objection, is if you, a priori and without any logical cover, assume the “wages are sticky downwards” nonsense that underpins Keynesian lack-of reasoning. IF wages are set by “agreements” for all future, and the only way to lower them is to first go bankrupt and out of business; and it’s illegal to hire people on more flexible terms; then yes: Using proper money instead of some privileged twits’ toilet paper as a means of payment, will eventually lock things up pretty tight.

But the only reason that illusion still persists, is because virtually every time it has been under pressure, it has been bailed out. By the same-old printing of more money. For no other reason that it 1)allows spineless owner/managers to pretend to be generous safe in the knowledge their Sugar Daddy will take back any raise they magnanimously “give” their workers. 2) Allows union bosses and other rather-be-a-labor-organizer-than-do-any-actual-labor to grandstand for their saplings. And 3) provides “work” for an ever-growing army of nothings signing and enforcing “agreements,” along with the rest of the pathetic rituals that currently passes for something so basic as just offering some dude a lemonade in exchange for helping you split some wood, letting him either take it or leave it.

Once salaries are allowed to be set and move flexibly, there is exactly zero reason why the quantity and “valuation” of money in circulation, has any effect on relative costs nor competitive positions, whatsoever. Allowed to flexibly adapt to their environment, people will do so. Not magically go bankrupt, turn unemployed and starve to death, just because of some arbitrary valuation of currencies.

Also, note that the exact same “reasoning” Keynes employed, can be used to argue for the necessity of a higher rate of inflation than the next guy. After all, the Deutsche Mark being debased slower than the Lira would drive German producers out of business for cost reasons. By the exact same process those using the slowly debased Deutschemark, would drive those using even slower debased Gold out of business. Until Zimbabwe ended up with all the good jobs……

I told you long ago that a citizen's dividend was an idea whose time had come. 5 star just doesn't know how to implement it properly.

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