Salvini: just what is he up to?

Just after Easter this year I was invited to a barbecue on the outskirts of Rome in a place called Tivoli. Villa Adriano and Villa d'Este are nearby.

 

I was invited to the house of some close friends who have a property just outside the centre with lovely gardens in which to have a BBQ. Anyway, as you might imagine, we were all liberal lefty types, apart from the fact that our friend had also invited her brother, sister in law and her family (I think they had invited themselves actually as it is a shared property). Apparently, the sister in law’s family had been out to see Salvini talk in Tivoli that morning and the father was beaming like a proud peacock because he had managed to get a selfie with Salvini.

 

I shouldn't find this surprising as he seemed to be the kind of person who would be a Salvini supporter, but it does go to show the kind of loyal support he is building in these peripheral towns to the big cities in Italy. Even some city friends, who are immigration friendly but more concerned about the continuing economic malaise in Italy, are giving him support for lack of an alternative.

 

So, I thought it would be worth having a very simplistic Gareth's eye view on what I think is going on.

 

MY VIEW ON A GENERAL ELECTION

 

Salvini has been garnering support for his party since the general election in 2018. He has a very sophisticated and effective online and social media machine which he has been cultivating for years, in the same way that Trump uses Twitter and the Leave.EU campaign in the UK used Facebook. This machine has been working over-time to build support and use whatever means to get him and keep him in the public eye, to hit a chord with more potential voters. This seems to have been an effective strategy, driving him to the European elections and using those as a pseudo general election in Italy. That question of his popularity was answered overwhelmingly with a big YES. La Lega was the largest party in Italy with a vote of 32%. See the map below for the difference between the 2018 general election results and the European elections.

 

Italy General Election results 2018

 

 

 

Italy European Election results 2019

 

HERE WHAT DOES THIS MEAN?

 

Since La Lega wiped the floor with their nearest competitor (PD) and has all but finished the M5S (in which he is in a coalition government) then my guess is that before the end of this year (sometime after the summer) he will pull his support for the coalition and call another general election, which by any measures he is likely to win if he goes into a coalition with his other right wing party friends, e.g. Giorgia Melloni's Fratelli d'Italia or Forza Italia, and then, welcome to a Salvini Italy. The mind boggles.

 

WHAT ABOUT THE ECONOMICS?

 

My blog is all about the finances, so it is worth looking at some of Salvini's pledges to re-invigorate the Italian economy. The first being the 'flat tax' which is likely to come into effect from January 2020 for individuals. It is already underway for anyone with a partita IVA.

 

His proposal is to declare a family flat tax of 15% on the first €50000 worth of family income, 20% on the amount above €50,000. It will work in a similar way to the current partita IVA regime where you have to forfeit (regime forfettario) the right to detract any expenses from your income (medical, vets bill etc.) and just accept a flat 15% on the family income up to €50,000pa.

 

The means to pay for this regime (and to fill the hole it will leave in comune pockets as a result of reduced tax take) will supposedly come from the forfeiture to detract expenses and also the fact that more people will be declaring taxes (theoretically!). The monitoring of tax evasion will also be increased. This could benefit many of us.

 

LA LEGA'S OTHER IDEAS

 

Let's talk about BOTs and miniBOTs for a moment.

 

WHAT IS A BOT?

 

A BOT (buono ordinario del tesoro) is an Italian short term Government Bond which doesn't pay any interest and with a maturity date within 12 months. In short: a punt on the Italian economy. WHAT IS A miniBOT? You may not have heard about the miniBOT, and I am here to tell you that it is not a small robot. It is a Lega proposal to introduce a parallel currency in Italy. The Banca d'Italia would print billions of euros of non-interest-bearing, tradeable miniBOTs which could be used by recipients to pay taxes and buy any services or goods provided by the state, for example, petrol at stations run by state-controlled oil company ENI.

 

It is proposed as a way to mobilise credit that is badly needed and get money into circulation, and there is no shadow of a doubt that Italy desperately needs available credit. Its banks have been paralysed for years with high levels of bad debt. The bad debt is approximated to be at €100million, although this is now half the level of 2017. Even so, an injection of liquidity into the system is what it needs. The liquidity should come from Europe, but Europe, aka Germany, has refused to do this unless it comes with fiscal responsibility (something that Italy is not renowned for).

 

The miniBOTs would create a parallel liquidity, to be used to pay the €50bn of arrears that are currently outstanding to state contractors and also households. Once the short term notes were starting to be traded on the open market they would become a de-facto currency: a new lira. Italy would have a split monetary system and it is not beyond imagination that the Euro could start unravelling.

 

THE DOWNSIDE

 

Whilst this could be a good idea to find liquidity for the Italian economy without flouting EU rules, it could create significant problems. The main one, as I see it, would be rapid inflation. With more money sloshing around the system, more money chasing limited supply of goods, it would put upward pressure on prices. It would also put huge pressure on the stability of the Euro itself.

 

THE UPSIDE FOR STRANIERI

 

However, for every downside there is an upside and for anyone worrying about continuing to hold Sterling based assets and their ongoing value with Brexit, then the miniBOT would almost certainly put pressure on the stability of the Euro, to the extent that it could find itself being devalued considerably against other major currencies, Sterling included. However, I wouldn't hold your breath. At this stage, I see the miniBOT being used as a political tool to try to force some change in Brussels, allowing the European Central bank to act as a lender of last resort and start printing more money for struggling European economies. More likely is that the current slowdown in the German economy, as a result of the slowdown in spending in China, is going to press the Germans to take a look at their closer neighbours and find ways to stimulate the EU economy again. Whilst the Chinese economy grew, Germany could benefit from its strong export market. Now that the Far East market is slowing, they may need to look to their old economic allies. That could mean accepting money printing that may come with rampant inflation: the one thing they are desperate to control.

 

WHAT SHOULD YOU DO?

 

Not a lot! My fundamental rules for living and managing your finances as a resident in Italy are:

 

1) make sure you are registered to pay your taxes. i.e. 'in regola'

 

2) if you haven't done so already, take a look at your finances and make some financial plans. You may be paying more than you need to in taxes

 

3) make sure you inflation proof your savings. Whatever the weather, inflation is coming our way (if it isn't here already)

 

But remember that the sun is shining, there is plenty of wine to drink, culture and history to see, and life to live. I am keeping an eye on developments so you don't have to and should any of these changes affect where, why or how you make, take or invest your money, then I am on top of it and will let you know.