Monday, June 06, 2005

Lira nostalgia

When I first visited Italy in the 90s, I was hit by sticker shock. Every conceivable item was priced in tens of thousands of units of the local currency, the lira. To the uninitiated, an ice cream costing 4,000 lire seemed ludicrous (...that is until you try a pistachio/caffe gelato. I'll take a grande size, per favore.) Doing the rough calculation of 2,300 lire to the dollar or 3,000 lire to the British pound, was a dizzying excercise. It's just too many damn zeroes to carry over in one's head. But when you added it all up at the end of the day, foreigners quickly realised: "hey, these lire are cheap." And thus, tourists learned to love the lira because it became synonymous with cheap shoes, handbags and wine. That era ended of course when the euro replaced the lira in January, 2002. The euro has gone on a tear, sinking the dollar and closing in on the pound as the Western world's most pricey unit of currency.

Today, the euro is blamed for a good deal of Italy's economic ills. The job market for university grads is dismal. There simply are not enough jobs for the most intelligent and most able-bodied young Italians. Wages in absolute terms are creeping down for first-time professionals. The country is in its second straight recession, and, scarier still, prices of everyday products seem to go up all the time (contradicting of course what the govt says).

In the past, the Italians would take to the street and demand action, asking the government to usher in some combination of monetary and fiscal policy controls to goose the economy, or worse, have them devalue the currency (a favorite policy ploy of the Bank of Italy in the 90s). But today interest rates and money supply issues are handled out of Germany on an EU-wide basis. The result is Italian politicians have few mechanisms at their disposal (foreign creditors are happy to report) other than to ride out the tide. And so, Italian politicians are looking at the worst possible scenario: a faltering economy that is almost completely out of their control.

Oh, but this being Italy, there is a dramatic trick to play. Bring back the lira, says Italian welfare minister Roberto Maroni. Maroni, it must be noted, is a member of Italy's Northern League, whose constituents in the prosperous north benefitted most from Italy's chronic devaluing of the lira a decade ago, thus making Benetton shirts and Pirelli tires cheaper abroad. (The problem was Italy's debts ran higher as it would take more lire now to pay off foreign loans.) It must also be said that another member of the ultra-right Northern League, justice minister Roberto Castelli, landed the party in hot water this weekend when he declared that the wearing of a burka in public is a crime.

The return of the lira would not mean much of anything for typical Italians. It would not miraculously create jobs, it would not make the Italian economy any more competitive (beyond a short term boost) and it would not stop burka-wearing women from scaring the wits out of politicians from Lega Nord. But it would mean cheaper handbags and shoes for tourists, so maybe it is worth considering.

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