Currency and Trust

Whenever people talk about bringing back the lira, the conversation seems inevitably to drift towards banknotes. Fifty thousand lire, a million in the bank, a coffee for a thousand lire: those enormous figures that now belong more to memory than to economics. It is understandable. There is something surprisingly intimate about money. It passes through our hands every day, disappears into our pockets, measures our work, accompanies our fears and desires, and eventually becomes part of the way we remember an age. Yet if Italy were truly to consider returning one day to a currency of its own, the least important question would be what the banknotes looked like. Printing the lira would be relatively easy. Convincing millions of people, businesses and investors that the lira was worth holding would be infinitely harder.

Any serious plan for restoring the lira would have to begin with this apparently paradoxical truth: in order to leave the euro with confidence, Italy would first have to become strong enough not to need to leave it. We should not begin with the currency, but with the country. In 2025, Italy’s public debt stood at 137.1 per cent of GDP, exceeding €3.095 trillion, and the Bank of Italy continues to regard its sheer size as a source of vulnerability, particularly when international markets come under stress. To imagine that replacing the word “euro” with the word “lira” in front of a debt of that magnitude could somehow solve the problem would be to confuse the symbol with the substance. A currency can change the way a country confronts its problems. It cannot make those problems disappear.

For this reason, a return to the lira, if it were ever to become a genuine political choice, would have to begin many years before the day of conversion. The first stage should not even look like preparation for leaving the euro. It should simply look like good economic policy: a gradual reduction in the debt-to-GDP ratio, a stronger primary balance without sacrificing investment, a longer average maturity of public debt, a sound banking system, less dependence on imported energy, greater export capacity, and sustained investment in technology, infrastructure and productivity. None of this would be particularly spectacular, nor especially suited to political rallies, because great economic transformations almost always share the same inconvenient characteristic: they demand years of discipline and often produce their results only after those who began them have left office. Yet this would be the most serious possible demonstration of a desire to recover sovereignty. Sovereignty does not begin when a country prints its own money. It begins when that country is strong enough to sustain its value.

Only after such a long preparation would the political and legal question arise. Italy is not Sweden or Poland, countries that belong to the European Union but never adopted the euro. Italy entered the single currency, and the treaties currently provide no ordinary exit from the euro area comparable to the mechanism for leaving the Union itself. Article 50 expressly governs withdrawal from the European Union, whereas a country wishing to abandon only the euro while remaining within the EU would have to construct an entirely new political and legal arrangement, most likely through treaty revision or a specific protocol. This matters because an orderly return to the lira would have to emerge from negotiation, not from a night of rupture in which a government suddenly announces that, beginning the following Monday, everything has changed. Currencies live on trust, and trust does not coexist easily with the suspicion that the rules may be rewritten overnight.

Only once that framework had been established would it make sense to discuss the new currency itself. I would simply call it the lira, but I would resist the temptation to recreate artificially the world of 2001. There would be little purpose in returning to the historical rate of 1 euro to 1,936.27 lire, other than granting ourselves, for a few weeks, the sentimental illusion of recovering the numbers of our childhood. A new currency should begin simply: perhaps one new lira for one euro at the moment of conversion. A salary of €2,000 would become 2,000 lire, a pension of €1,500 would become 1,500 lire, and a bank account containing €80,000 would contain 80,000 lire. A family mortgage, where governed by Italian law and included within the scope of redenomination, would have to change currency together with the income used to repay it, because one of the most dangerous outcomes imaginable would be to pay people in lire while leaving their debts denominated in euros. For months, perhaps for a year, prices should be displayed in both currencies, not only to allow people to become familiar with the new system, but also to make it much harder to exploit monetary confusion as an opportunity for concealed price increases—as many Italians remember, sometimes accurately and sometimes through the magnifying glass of memory, from the physical introduction of the euro.

And yet this would be precisely where the easy part ended. The day of conversion would merely be the first day in the life of the new lira. A government could decree that one euro had become one lira, but it could not decree with equal ease what that lira would be worth a week later. Its value would be determined every day by the confidence of those buying and selling it. It is reasonable to expect that a new lira would initially come under downward pressure, but any precise estimate—ten, twenty or thirty per cent—would today be little more than numerical fiction. Much would depend on the economic circumstances of the time, the level of public debt, the trade balance, foreign reserves, the credibility of the Bank of Italy and, above all, whether the return to a national currency was perceived as part of a coherent national project or merely as an attempt to escape existing problems through devaluation.

This is where the entire project would be decided. A moderately weaker lira might restore competitiveness to some Italian businesses, support exports, make Italy more attractive to tourists and allow the economy to absorb through the exchange rate some of the shocks that today have to be absorbed through wages, prices, public budgets and employment. Yet exactly the same depreciation would make everything we buy from abroad more expensive. Oil, gas, industrial components, technology, certain raw materials and many consumer goods would enter Italy at higher prices. Petrol, at least initially, might therefore become more expensive rather than cheaper. It would be one of the cruellest ironies of returning to the lira: some people might support it partly as an escape from the rising cost of living, only to discover that one of its first consequences was an increase in the price of imported goods.

It would nevertheless be wrong to stop at this image and conclude that every devaluation is necessarily a disaster. One purpose of a national currency is precisely to allow its exchange rate to reflect the characteristics of the economy it represents. The question is one of degree. There is an enormous difference between a currency that loses value once, finds an equilibrium and then establishes credibility, and a currency that begins to fall because everyone expects it to keep falling. In the first case, the exchange rate can become an instrument of adjustment. In the second, it becomes an escape from the national currency itself. That is where the most dangerous spiral begins: the currency weakens, imported goods become more expensive, inflation accelerates, the central bank raises interest rates to defend the currency, the cost of servicing the debt becomes heavier, confidence deteriorates and the currency is sold again. A serious Lira Plan would have to be designed almost entirely around preventing that sequence from ever beginning.

For the same reason, the banking system would have to be prepared with almost obsessive care. The mistake would be to wait until the official announcement before thinking about deposits. If someone had €100,000 in a bank account and knew that in three months it would become 100,000 lire, the first question would not be philosophical. It would be whether those lire would still be worth €100,000 or perhaps only €80,000. That is precisely the kind of question capable of turning a political decision into a movement of capital. In 2012 Italy did not actually have to leave the euro for this mechanism to appear: the mere fear that some debts might one day be repaid in a different and weaker currency contributed to higher yields. A later ECB analysis estimated that, at the height of the crisis in July 2012, shocks associated with redenomination risk accounted for roughly 170 basis points of Italy’s five-year sovereign spread. It is a precedent that calls for caution: markets often react not to what has happened, but to what they fear might happen.

From this would arise perhaps the most politically delicate issue of all: how to protect savings without imprisoning them. In an extreme situation, a government might be tempted temporarily to restrict capital transfers or banking movements, but that would already be evidence that the transition was not proceeding with the confidence originally intended. True success would consist in never having to prevent citizens from moving their money abroad, because they would have no compelling reason to do so. A credible deposit guarantee, well-capitalised banks, abundant liquidity, substantial foreign-currency reserves and a Bank of Italy capable of acting as lender of last resort would therefore matter far more than the portrait chosen for the new hundred-lira note.

The Bank of Italy would undoubtedly return to the centre of national economic life, but here too we would have to abandon one of the most persistent illusions surrounding monetary sovereignty: possessing our own currency would not mean being able to create wealth in the government printing works. A central bank can provide liquidity, influence interest rates, purchase assets in financial markets and prevent a temporary crisis of confidence from bringing down the financial system. It cannot create oil, productivity, technology or human capital. If it created money without the economy producing more goods and services, the difference would eventually reappear in the form of higher prices or a weaker currency. And if Italy remained within the European Union under a special monetary status, the relationship between the new monetary architecture and the existing constraints of the European treaties would also have to be defined. Restoring an Italian governor to the centre of monetary policy would not, by itself, recreate a world in which the state could spend without limits.

It is precisely here that a project to restore the lira could acquire a dignity quite different from mere nostalgia. If the objective were simply to recover the ability to spend more easily, borrow more heavily and devalue whenever the economy lost competitiveness, the new currency would probably become the most expensive way of postponing Italy’s problems yet again. If, instead, the return to the lira were the conclusion of a process in which the country had already reduced its debt, increased productivity, strengthened its banks, reduced its dependence on imported energy, enlarged its reserves and rebuilt a culture of financial responsibility, then it would become possible to debate seriously whether monetary autonomy added something valuable to that strength.

And this is what makes the Lira Plan almost contradictory in its best possible form. The better prepared it became, the less necessary it might be to carry it out. An Italy with a steadily declining debt burden, competitive companies, secure energy supplies, robust banks and stronger growth than in recent decades would also be an Italy capable of living far more comfortably inside the euro. At that point, the choice of currency would finally become what it ought to be: a choice, not an escape. Italy could decide to remain because remaining served its interests, or recover its own currency because it considered the additional autonomy worth the cost of transition. Either way, the decision would arise from strength rather than necessity.

Perhaps this is the most interesting part of the entire question, because it ultimately takes us far beyond the lira itself. Sovereignty is not the right to print the name of a country on a banknote. Even a formally independent state can find itself obeying its creditors, the price of energy, the fears of its savers or the weakness of its businesses. Conversely, a state that voluntarily accepts common rules can retain enormous freedom of action if its finances are sound and its economy is one that others want to finance and with which they want to trade.

A currency, after all, is one of the strangest forms of trust human beings have ever invented. A piece of paper is worth almost nothing, yet we entrust to it part of our work, our time and our future because we believe that tomorrow someone else will do the same. It is this belief, far more than ink or paper, that turns it into money. For that reason, a return to the lira should not begin by asking whose face should appear on the banknotes, how many zeros they should contain, or how rapidly public spending might be freed from European constraints. It should begin with a far harsher question: what would Italy have to become for millions of Italians, on the day after the return to a national currency, to prefer keeping their lire rather than immediately exchanging them for euros?

If we knew how to answer that question, we would probably already have solved a considerable part of the problems that have accompanied us for the past thirty years.

And it is here that the Lira Plan ceases to be merely a monetary project and becomes something more difficult: a project for the country itself. The true objective should not be to recover the right to print our own money. It should be to build an Italy in which that money, if one day we genuinely chose to print it again, would be wanted not because people were compelled to use it, but because they trusted the country standing behind it.