Working Papers

F. Passacantando – Italexit, Debt Cancellation and ParallelMoneys: The fatal attraction for the Argentine solution

This paper aims to show the extraordinary complexity of an exit of Italy from the euro
through a comparison with Argentina, which in the 1990s adopted a currency board with full convertibility of the peso with the dollar. According to some, the experience of Argentina, which started growing rapidly a few years after abandoning that regime and defaulting on its debt, shows that leaving the euro and restructuring the debt could give “new life” to Italy. This conclusion is profoundly wrong for at least two reasons. First, Argentina had kept a national currency, the peso, and a peso-based payment system, alongside that in dollar, while Italy would have to create a new currency and, most importantly, a new payment system for interbank transactions, since the one currently being used only accepts euros and is centrally managed by Eurosystem. In this scenario, the public would lose full access to their bank accounts for a long time and the country would be isolated from international financial and currency markets. Secondly, in Argentina the public debt in relation to GDP was less than half that of Italy and mainly held by foreign residents. Debt restructuring in Italy would slash the wealth of Italian households and have a major impact on banks, which have already been severely hit by the double crisis of recent years. To avoid these risks some political forces have recently proposed the creation of a new parallel currency that would circulate alongside the euro. The paper shows how in Argentina, the creation of “quasi monies" or fiscal currencies by several provinces did not have a positive effect on growth and was one of the main factors that precipitated the crisis.

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