Episode 115 – Fiscal Money and the European Union with Marco Cattaneo

Macro N Cheese – Episode 115
Fiscal Money and the European Union with Marco Cattaneo
April 10, 2021

[00:00:04.170] – Marco Cattaneo [intro/music]

 Fiscal money as a concept is just the idea to create and securitize tax credits. And that’s a concept which is not new. I don’t pretend to be the first one to have basically created out of the blue.

[00:00:25.170] – Marco Cattaneo [intro/music]

The issue of using fiscal money, tax credits as credit certificates alongside the euro is much easier from a technical standpoint definitely, not easy, but easier from a political standpoint than breaking the euro up.

[00:01:35.200] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.090] – Steve Grumbine

All right. And this is Steve with Macro N Cheese. Folks we’re going over across the pond into Italy. I have none other than Marco Cattaneo and Marco is an investor. So we get the investment side of the game. But we also have a guy who is an expert in the EU and he is a fellow traveler within the Modern Monetary Theory space. Warren Mosler even wrote the foreword of one of his books that I’ll let him bring up here in a moment. But without further ado, I’d like to bring on my guest, Marco. Welcome to the show, sir.

[00:02:16.400] – Marco Cattaneo

Thank you for having me.

[00:02:18.100] – Grumbine

So what was the book that Warren Mosler wrote the foreword for? What was it called?

[00:02:23.250] – Cattaneo

The title was La Soluzione per L’euro, which means How To Solve the Euro Issues, basically.

[00:02:33.040] – Grumbine

Well, anything that Warren puts a stamp on is OK with me, so it’s very nice to get to meet you. I think I met you actually at one of the MMT conferences if I’m not mistaken.

[00:02:43.570] – Cattaneo

I did.

[00:02:44.740] – Grumbine

This is very exciting for me. I don’t know a whole lot about the EU. And when you started talking to me about understanding the European Union and the fiscal space there, it’s an area that I know just enough to get myself in trouble, but I don’t know enough to really talk authoritatively about it.

So, you’re going to be educating me today, and I really appreciate that. So let’s just go ahead and jump right in because we’ve got a lot to cover. The first question I have for you, I guess Marco, would be could you explain the structure of both the euro and the European Union and also what are the main problems related to the euro and the EU?

[00:03:25.500] – Cattaneo

Well, basically, the European Union is an agreement which involves coordination of economic policies and trade policies between the 27 European countries that used to be 28 of them, the United Kingdom left. And that’s what it is at this very moment. There is a push toward unifying all of them in a single political entity, a single superstate, but that did not happen so far.

And that’s what really the European Union is at this stage. Then you have the euro. The euro wants to become the common currency of all of the 27 countries, but for the time being, is just used by 19 of them. There are eight countries that decided to join the European Union, but not to introduce the euro as a currency, not for the time being at least.

And problems related to European Union and to the euro, well, there are very big problems and basically two which are very important. The second one in order of importance is that a single currency appears to be too strong for some of them and too weak for others. So it’s very difficult to provide a set up of the interest rates of trade relationships which work appropriately for all of the counties belonging to the monetary union.

But more important than that, when the euro was set up, all 19 decided to implement a common background as far as fiscal policy is concerned, which is basically made up of a stability and growth pact and the fiscal compact. Basically, the regulation forbids them to generate fiscal deficits in excess of certain thresholds and basically provides a strong brake, a stronger countercyclical brake, which does not allow countries to generate the amount of fiscal deficits which are needed to overcome a weakness as far as the current economic situation is concerned.

[00:06:02.730] – Grumbine

Can I just interrupt you for a moment? One of the big things I was concerned about, and I want to address this, why you captured that, is that when we look at the United States and what we call our current accounts balance, and we understand that as a net importing nation, we are spending money out of the country and that money doesn’t come back into the country unless we sell goods and services or the government spends on us.

So we look at the stock flow consistent modeling or sectoral balances. When I look at the European Union, I wonder the countries that have a net importing position and they tend to be the countries that are in the weakest position, and the countries that are the net exporters such as Germany and others, they tend to have the strongest position in the European Union. Is that what you’re referencing when you talk about that position, the weak and the strong position?

[00:06:56.190] – Cattaneo

Well, yes and no, because Italy is an exception to this rule because Italy did not develop significant trade deficits. And actually, starting from 2014, Italy actually is generating a significant trade surplus, not as large as the German one, but very significant between three and four percent of GDP, which is not seven to eight that Germany does, but that is very large.

So the problem which Italy faces is not the inability to export goods and services. (It) is the large public debt which should then be regarded as the problem is with debt will be denominated in the national currencies with a full backup by the Italian central bank. That was the case with the Italian lira before joining the euro.

Now, basically, after having joined the euro, Italy is a country which does not have its own currency and we lack a central bank, which provides full backing as far as the public debt is concerned. So there are views which pretend to solve this by forcing the country to reduce the level of public deficit and of public debt as a percentage of GDP. That provides a very bad framework because (it) forces the country to implement procyclical policies at the worst moment.

[00:08:32.890] – Grumbine

And with the obvious concerns we have at the moment with covid and the shutdowns of the economy across the globe, clearly not having your own sovereign currency from which to provide that deficit spending has got to have a significant impact on the lives of the Italian people. Could you contrast that with the United States? The recovery fund, I believe, is what it’s called over there in European Union, correct?

[00:09:03.430] – Cattaneo

Yeah, but you have the stance you provided a strong effort in trying to put US dollars in people’s pockets in order to offset the worst economic damages created by Covid. In the eurozone, the effort has been a lot weaker, and the result of these damages, the fall in GDP created by the Covid has been much worse.

To say that for the time being, there has been a suspension over rules governing the public deficits and the public debt in the eurozone countries, but everybody knows that sooner or later those rules will be reintroduced and thus provide the break, which basically forces countries not to go at full speed, as the US did, in order to provide subsidies and to put the money in people’s pockets, basically.

[00:10:10.080] – Grumbine

With Italy being a smaller country than the US, what kinds of impacts does this have? Because Italy got hit particularly hard with the deaths and the illnesses of the Covid virus. The images and the news coming out of Italy was very alarming. Many people dying from it. Can you explain to me how Italy handled that?

[00:10:36.300] – Cattaneo

Well, basically, we were the first Western countries severely affected by the Covid at the beginning of March last year, 2020. And what has been done is to implement a very severe lockdown, which was imitated by all the other most important European countries in Metro, a few weeks, to be honest.

That’s reduced the amount of infections and the in a couple of months, it looked like the emergency situation was over. But then we had a second wave starting from October, and a partial lockdown was reintroduced. And we’re still in a situation where it is unclear when the lockdown will be lifted. In addition to that, the vaccination process has been slower than (it) has been in the United States probably because (the) entire matter was very ineffectively handled by the European Union. But that’s difficult to assess.

Basically, what we have now is a situation where the drop in GDP has been much worse than the United States. The amount of money which has been spent by governments in order to offset these has been a little weaker. And, as a matter of fact, we are facing an economic situation which is much worse than the one which affects the US in this moment.

[00:12:15.780] – Grumbine

It’s terrifying to me because in the United States we kind of laugh at the word GDP because it really doesn’t mean a whole lot. I mean, if you have a tornado come through and destroy a trailer park and we have to rebuild it, well, you know, that goes into GDP. Any kind of economic activity goes into GDP, but we aren’t in any way constrained by GDP.

You guys are legally constrained by GDP. Your ability to have deficits against GDP, that’s a legitimate fiscal constraint. It’s a bad one, but it’s one that was written into law if I’m not mistaken. Can you explain how that will impact your ability to take care of the people?

[00:12:54.940] – Cattaneo

Well, basically, you are constrained by as far as putting money in public expenditures, including in public health measures, to contrast the Covid issue is concerned, and we are basically suffering not just from Covid, but from what has been made or not made in the next 15, 20 years. The euro has been introduced in the year 2001 for 1999.

In 1999 they fixed the exchange rates were established. The currency in terms of notes and physical currencies were introduced January 1st, 2002. Starting from them the fiscal views have been forced each country to reduce the amount of public investments, including public health expenditures.

So there has been a deterioration as far as the quality of health systems in each country has been concerned. And in my opinion, if Italy had the same public health framework we had 20 years ago before the euro, we would have been able to face public health crises much more effectively.

[00:14:16.330] – Grumbine

This neoliberalism that has taken over all of Europe it’s really terrifying. I spoke with Thomas Fazi and Thomas Fazi was very pointed in his disdain for the European Union and the so-called leftist leaders that have bought into neoliberalism in this whole fiscal austerity that has really kind of reigned supreme throughout Europe. I guess it brings us to the next point. I just wanted to understand better what exactly is the recovery fund in the European Union?

[00:14:47.680] – Cattaneo

The Recovery Fund is an agreement with 27 countries belonging to the European Union entered into one year ago in order to establish funding in the amount of 750 million euro in order to provide support to [inaudible 00:15:05] recovery following the hand over public health crisis. Basically is not specifically directed to face the public health issues, but to do, generally speaking, support the recovery phase, which should take place when the corporate regulator restrictions are lifted.

There are two major problems with the recovery fund. The number one (it) is small. Trump already put money into the economy and then by then approved recently a nineteen hundred billion additional push in order of support to the economy. And that’s going to be understand this birthday in one year or so. Seven hundred and fifty, which is much smaller than 1900, of course, has been the amount which is supposed to be put into economy in a matter of several years, probably six or seven years.

So it’s very small. In addition to that, there are a lot of regulation and approval hurdles in order to really start in disbursing the money as a result of which, no money has been disbursed based on this agreement after one year from its approval.

[00:16:35.430] – Grumbine

Wow!

[00:16:36.400] – Cattaneo

It is not likely that the support will come from the recovery fund, at least before autumn this year. So it is too late, basically.

[00:16:50.050] – Grumbine

OK, one of the questions I had is you had spoken to me offline about fiscal money. What is the fiscal money and who developed it?

[00:16:59.070] – Cattaneo

Fiscal money as a concept is basically a financial instruments, a security, which can be used in order to offset taxes that a citizen or a company should pay. Basically, a single government, take the Italian government, for instance, might issue tax credit certificates, which allow the holder to reduce tax payments, which normally are supposed to be paid in euro. As you know very well, one of the basic principles of the Modern Monetary Theory is that money is a tax credit.

So the concept is even given away the possibility to issue our own currency, we cannot print the euro. We cannot issue euro as Italy, but nothing prevents us from issuing tax credit certificates, which can be used in order to support income, to support expenditures, to fund public investments, and to basically recover the amount of economic policy flexibility which will be needed not just in order to recover the political impact of Covid, but to recover all the damages that neoliberal policies taken under the euro created in the countries such as Italy.

[00:18:38.940] – Grumbine

Who developed it?

[00:18:40.820] – Cattaneo

Well, in this form, I wrote the first proposal in a few articles, and then I set up basically a group of economists that we should develop the concept in further details, both from an economic standpoint and from a legal framework standpoint. I mean, the tax credit certificates in particular, which are just one possible version of fiscal money. Of course, fiscal money as a concept is just the idea to create and securitize tax credits.

And that’s a concept which is not new. I don’t pretend to be the first one to have basically created (it) out of the blue. But in the present form, I developed it starting from the end of 2012. So eight years ago, basically and I tried to do my best in order to create interest around this proposal and to refine and make it consistent with the general treaty legal framework, which has been implemented in the eurozone and in the European Union.

[00:19:54.790] – Grumbine

So what is the relationship between the tax-backed bond, which was devised by Warren Mosler and Phillip Pilkington in fiscal money?

[00:20:03.550] – Cattaneo

Well, the tax-backed bonds were one of my major sources of inspiration, so to speak. I read Warren Mosler and Phillip Pilkington’s article about the tax-backed bonds. They basically propose it in order to try to reduce the spread issue. So the difference between interest rates in stronger and weaker countries of the eurozone, which during the sovereign bond crisis of 2011, 2012, looked like being the main problem of the eurozone.

The additional step I took was to basically think about the fact that the problem facing the eurozone is not just the difference between interest rates on the public debts for different currency, but the inability to provide the support to the economy during a recession or a depression.

So basically, the idea is issue tax-backed bonds, not just in order to have an alternative to based government bonds to be paid back in euro, but in order to create a sort of parallel currencies, in order to a kind of additional purchasing power instrument, which could be used in order to support income and to support public policy, public welfare expenditures and the like.

[00:21:41.360] – Grumbine

So if I’m understanding this correctly, it sounds to me like fiscal money might be a way to apply prescriptive elements of MMT to countries which adopt the euro as a currency or other countries or states even in the United States. And if I’m thinking even more broadly, this is a possible way of empowering those states that do not have their own sovereign currency. Is that correct?

[00:22:04.970] – Cattaneo

That’s 100 percent correct. Basically, I developed the idea, the concept in order to try to adopt and implement the Modern Monetary Theory ideas and prescriptions to the Eurozone situation. To be honest with you, I believe that the euro is a very bad approach and adopting it was a major mistake. On the other hand, I feel that both from a technical and from a political standpoint to breaking up the euro is quite complex.

I’m not saying it’s impossible to do it. I’m not saying it will not happen in 50 years from now. I don’t know. But the issue of using fiscal money does produce credit certificates alongside the euro is much easier, much easier from a technical standpoint, definitely. Not easy, but easier from a political standpoint than breaking the euro up.

[00:23:09.940] – Grumbine

Is there any legislative push for making this law? Is there any bills out there currently in play that might make this happen?

[00:23:17.930] – Cattaneo

Yes, there are two bills which have been submitted to the Italian parliament by two parties, which are not part of the current majority support in the Draghi government. So the bills are there. The likelihood that it will be accepted is quite limited to be honest with you at this stage. In addition to that, there is a more interesting development, a very partial and limited but significant application of fiscal money actually has been introduced in Italy one year ago.

Basically, I’m talking about the tax discounts, which has been granted to real estate maintenance companies in case they basically perform restructuring business on behalf of houses. So if you are a landlord and you want to improve from an environmental and energy efficiency standpoint your own building, you can call a building maintenance specialist. You can ask for a quotation.

How much money do you want in order to perform this work? And in case you started doing it, the government provides you with 110 percent of the amount of your expenditures in [inaudible 00:24:50] terms of tax credits. In turn, there are banks which are available to purchase from you at a small discount, five, 10 percent discount, those tax credits.

So I’m talking about in the instruments, which is already an application of my own philosophy. People want, if you like, and we’ve been able to do it because we have contacts with the economists working inside the government which submitted these ideas and were able to get it introduced in one of the law decree which has been passed as a support to the economy at the very beginning of the Covid crisis.

[00:25:34.860] – Grumbine

Marco, one of the things that jumped out at me is I haven’t spoken to a single person that has a positive thing to say about Draghi. Can you explain to me what folks are so upset with Draghi about?

[00:25:46.470] – Cattaneo

Well, Draghi is a very complex person. First of all, he’s a very smart guy and he created a very high reputation within the financial system and within the European Union because he is basically the man who saved the euro, you know, whatever it takes. He was able to pursue the European Union and particularly Germany, to provide support to currencies which have the high public debt in order to avoid the euro breaking up in 2012.

So he was the guy who avoided the break up over euro, is a very well-connected inside the establishment. He basically is the person which made it possible for the euro to survive. And as a consequence of this, made possible the neoliberal framework to stay alive. That’s one reason why if you are a MMT follower or if your idea is that that the euro has to be broken up, has to be overcome in some way, you can regard him as an enemy.

On the other hand, he is very competent from a technical standpoint. In my opinion, he 100 percent believes and recognizes the system as it is today cannot work. He is fully aware of the problems inside the current system. So I mean that my judgment as far as Draghi is concerned is ambiguous. I’m not sure he will provide the benefits to the problems Italy is facing now.

On the other hand, I don’t think there is anybody else in the current Italian political environment who has the standing and the political clout necessary in order to force a major overhaul of the system. In my opinion, he has the standing which is needed.  He could be able to change the system, whether or not he wants or he has, let’s say, a possibility.

To do that is a different matter, and I’m not sure. Having said that, I think the development of having Draghi as the prime minister is a development which is interesting to follow. Remember that before him, we have governments that from time to time were very critical as far as the current setup of the European Union and over European zone were concerned, but were totally unable to do anything against it.

So, yes, we’re standing to face the Germans and tell them we cannot go ahead with them. And there is nobody else which we is able to perform the same role. I’m not implying I’m sure he will do it. I’m not sure at all, but I’m positive that the previous prime minister we had in Italy were not able to achieve anything about the matter.

[00:29:27.080] – Grumbine

Very good. Thank you. I have a little bit better understanding.

[00:29:33.820] – Intermission

You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube and follow us on Periscope, Twitter and Instagram.

[00:30:31.300] – Grumbine

I’m going to take us to Adam Smith for a minute. In The Wealth of Nations, Adam Smith wrote, “A prince who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind might thereby give a certain value to his paper money.” Could you comment on that quote?

[00:30:51.220] – Cattaneo

Well, basically, it is the very principle of chartalism, which is one of the basic tenets of Modern Monetary Theory or financial or finance and all of it related to economic theory. Basically, I was surprised when I read for the first time this sentence, which implies that certain basic facts have been already known by very prominent scholars, 300, 400 centuries ago.

And basically, it lets you understand that there is no need for gold backing, there is no need for fixing interest rates as long as you declare the taxes in your country have to be paid in the currency the government prints or the government issues. You create money and that money is valuable. The only problem you have is not to create too much of it, to not put too much of it into the economy.

So not to generate deficits too high, which could create inflation, but if you don’t have inflation and you have strong employment, there is nothing to be worried about. You will be able to create money and to use it in order to generate the higher deficits and higher support for regional economy.

[00:32:16.980] – Grumbine

The way I understand it, the tax obligation is really what provides the impetus or the magnet that makes money move. As Warren would say, taxes create buyers and sellers of goods and services. But to make it even more simple in my mind, I always think about the government spends money into the economy and then it taxes it out of the economy.

And it’s that circuit that provides not only for the aggregate demand, it helps facilitate that. But it also is just simply the way that these otherwise worthless pieces of paper take on value by being a tax credit. Is that a fair way of saying it?

[00:32:53.760] – Cattaneo

We’re definitely talking 100 percent about the same thing. And what I’m trying to do basically with fiscal money concept is to say it is difficult for the reasons that I mentioned before to break up the euro. It is difficult to get rid of the euro. Why don’t we keep the euro, but put an additional amount of purchasing power into the economy by using a parallel instrument? We just complement and we just increase developing purchasing power by taking benefit over concepts you mentioned before. That trade is our money, our formal currency.

[00:33:33.780] – Grumbine

This is great. So one of the things that’s happening in the United States right now, and I like the play back and forth for people that are listening. Obviously, the U.S. is a monetarily sovereign nation. The United States has a sovereign, free-floating, fiat currency, non-convertible, non-force redeemable. It is 100 percent fiat, ok. In Italy, however, they are like Texas or Maine or Delaware or California.

They don’t create their own currency as of now. They are using a shared currency across the EU, which is the euro. And in that particular case in the United States, we have Ayanna Pressley, who, with the help of many MMT scholars, has pushed forward a federal job guarantee. However, in the European Union and particularly in Italy, a job guarantee seems like it would almost be impossible based on the rules of the EU. But it seems like with this fiscal money maybe a job guarantee program might be possible over there. Can you talk about that?

[00:34:34.170] – Cattaneo

Well, definitely that’s the case because, I mean, if you introduce the appropriate amount of fiscal money in order to provide support to the economy, you can use it for several different potential policies, so one of them may be funding job guarantee programs. And not just that. In addition to that, you can fund public investments, you can reduce taxes, you can support lower income and so on and so forth.

But the idea of a job guarantee, which is one of the best tenets of Modern Monetary Theory is very interesting in my opinion, but it is completely impossible to be put in place as long as you are starved of any amount of purchasing power. So basically, in order to achieve this, as well as other progressive reforms, as far as the management of your economy is concerned, you need to have your own currency.

You can accept the idea to share a common currency as long as you also have your own currency in a way such, too, basically dealt with the European Union, you don’t want to issue more than a certain amount of public debt, of euro-denominated public debt. OK, no problem with that. We are going to respect those limits, but we are going to introduce tax credit certificates, fiscal money for the initial amount which is needed in order to generate full employment.

That’s the idea. And it is 100 percent consistent with the treaties. We spent a lot of time, myself and my colleagues, to basically analyze very carefully the European Union and the eurozone treaties, the treaties governing the functioning of the eurozone, that there is nothing in them preventing the introduction of fiscal money. As I told you before, the bonus of fiscal money, which has been introduced on a very limited amount in Italy is already an example of it and it’s perfectly legal.

No one questioned the possibility to do that, and that has been made in Italy. The only problem with that is the amount has been very limited. Anyway, the Italian government recognized that the mechanism is working. And so the next step will be made. Take it as a test, if you like. The next step to be made is not just to issue approximately one billion euro, but to go to 20, 50, 100 billion euro, maybe even higher amounts or whatever is needed to put that into the economy, then beneath the level of purchasing power in order to trigger a strong economic recovery and to obtain to achieve full employment.

[00:37:40.770] – Grumbine

I want to jump in. Something you said earlier sticks with me with regards to too much money, inflation and so forth. The way I’ve understood this and I’d love to talk about this. If I spend a trillion euro into the economy, but it doesn’t go to the regular people. If that money is being spent at the top and it just pools at the top and you don’t have any real flow through the economy, that is really not going to have an impact on inflation per se, in the sense that those people have not been able to realize that aggregate demand.

They have so much demand built up, they have no way of exercising it. So the question becomes, if I spend money at the bottom and I give those people in Italy and around the European Union the ability to spend. The real question comes down to do we have an economy? Do we have production to meet that demand? So it really isn’t about the amount of money, but it’s where it’s spent and what that does to aggregate demand. Am I close or am I off there?

[00:38:40.860] – Cattaneo

No. You are close. And basically, all the accounts that you outlined are relevant. In particular, there are two major things here. First of all, you have to target the segment of the population who is more likely to spend the money you put into their pockets. And of course, you’re talking about the lower-income people, not high-income people.

If you give a tax break to a billionaire, probably that’s not going to change much as far as his own personal expenditures because he already has all the money needed in order to do whatever he likes, basically. So you have to give money to persons who are the lower scale of income and wealth distribution at that point, which is important.

An additional point that you mentioned which is very important is that, of course, introducing purchasing power into the economy generates inflation and not additional production employment in the case where production capacity is not there. The point is that there is a lot of unused or spare production capacity in Italy. I’m sure about that for a very simple reason. The Italian economy is in a very bad situation since at least the 12, 13 years following the great financial crisis, the Lehman bankruptcy of 2008 and so on and so forth, because we had the procyclical political economy which depressed the internal demand.

[00:40:23.870] – Grumbine

Interesting.

[00:40:26.180] – Cattaneo

But exports are the only component of Italian GDP that did not fall when it happened. And the reason for that is that our commercial, our trade partners did not do as much austerity as we did. So Italian companies actually were able to do not too bad in certain cases, even to thrive, on their own export capability. So they were able to increase exports at a time when internal demand was down. So take a company based in central Italy, Bologna, for instance.

It doesn’t make sense for this company having increased the sales to New York, to Sydney, to Johannesburg, to Shanghai, at the same time facing a reduction of sales in part of the country 100 kilometers apart. In my opinion, it doesn’t. The only problem is that internal demand was reduced while other countries did not do as much austerity as we did.

So there is a lot of underutilized production capacity in the Italian economy which is not just a matter of companies not fully exploiting their own manufacturing and production potential. It’s a matter of having a lot of unemployment and underemployment. So employment is a problem, but the bigger problem in Italy is part-time employment and people who are working for very low salaries and the very temporary jobs and the like. In my opinion, Italy is at least 20-25 percent of underutilization of its own production potential.

[00:42:30.600] – Grumbine

Wow!

[00:42:30.600] – Cattaneo

The only way to achieve the correct recovery of this underutilization production capacity is to inject purchasing power into the economy. It’s as simple as that.

[00:42:45.200] – Grumbine

That’s an excellent explanation. So let me ask you, coming back to fiscal money for a minute, based on everything we just talked about, what are the limits of fiscal money? Is there any legal constraints or is it just a macroeconomic stocks and flows kind of constraint?

[00:43:00.740] – Cattaneo

Well, there are no legal constraints. There are macroeconomic constraints. The first one is the one I mentioned before. You cannot print as much money as you want. Normal money or fiscal money, whatever, because at a certain stage, you will face another role as far as inflation is concerned. And that’s very easy to understand. But we’re very far from addressing this kind of problem.

The second matter is that as you are introducing alongside of a euro, a currency which is not the legal tender for whatever kind of private party’s transaction, but that can be used in order to offset tax payments, you have to be careful not to introduce an amount of purchasing power too large vis-a-vis with respect to the amount of gross taxes levied in the country each year. So the idea is the following.

As in Italy, total payments to a government – direct taxes, indirect taxes, public pension, cash contributions, and the like is around 800 billion euros per year. It could be a problem if you go too close to the 800 billion euros limit. You have to basically keep fiscal money in proportion, which is relatively small with respect to the amount of taxes paid each year.

Basically, we are developing a macroeconomic simulation which basically calls for introducing as much as 250, 300 billion lira of fiscal money, not all at once, but basically in the matter of two, three years. And we believe that’s going to create a lot of recovery as far as production and employment are concerned, without triggering any excess of inflation and without facing the problems related with the troubles in being actually used to employ all of these fiscal certificates that offset taxes. Those are the two major macroeconomic levers.

[00:45:32.540] – Grumbine

OK, that makes a lot of sense. Let me ask you. So in looking at this entire system that you’ve laid out, I’m going to ask you to compare a few things. What are the main differences among evolving the European Union into a fully functional federation with a common currency, exiting the euro and introducing fiscal money?

[00:45:56.170] – Cattaneo

Well, we are facing political issues here. The idea underlying the euro was having it as a step leading to the creation of a European Union as United States of Europe, OK? Basically, the idea is that this system cannot work unless, OK, you have a full-fledged federal state similar to the United States of America. The problem is that the current system is not working.

Everybody is recognizing that it’s not working as it is now, but there are some countries which are benefiting from it because it allows them to generate huge trade surpluses. In some countries, which are facing a lot of problems because of fiscal use creates a depressionary environment which could last for the next 20, 30 years.

[00:47:06.050] – Grumbine

Greece would fit in that, correct?

[00:47:08.030] – Cattaneo

Yes, but Italy, too, and basically southern Europe as a whole, including Spain and Portugal. Then from case to case, you can have bigger or smaller problems. But basically, the idea is that Germany and the northern European currency are OK with the current setup. France, not so much, but they can live with that. South Europe is in a very bad state.

The problem is that the northern European countries are much more influential from a political standpoint and they are happy with the situation as it is today. In addition to that, you need to have unanimity. So it is not just the matter of Germany being more powerful than Italy, which is the case from a political standpoint. The point is that basically Germany and the Netherlands and Austria, each of them has that right.

So you cannot change treaties as long as you have the agreement of all the 19 countries belonging to the Eurozone, not to mention the other ones, which are in the European Union, but not in the eurozone. So basically, we are in a situation where from a political standpoint, there is no real will to go ahead creating the United States of Europe. You have a dysfunctional system.

You don’t have agreement as far as change in treaties is concerned. And you don’t have – from the standpoint of countries which are damaged from the current situation – the possibility to achieve change by having everybody agreeing on a common framework. So the only possibility which is left, in my opinion, or at least we’re not able to think of anything else, is the fiscal money avenue.

Because we maintain and keep alive with the general framework as it is. We just introduce a specific tool which overcomes the dysfunctionalities of the system. Then if you are a believer that the United States of Europe are the future for Europe  – which I’m not, but that’s my personal opinion – having introduced fiscal money in countries which need them, does not prevent you to be able to achieve this political goal.

So it’s something which may or may not happen, but it’s not a possibility we are excluding or we are preventing by introducing fiscal money. And I have one thing I believe that as long as the entire system is a main problem at the end of the day for everybody, because a dysfunctional system is not good for the general stability of the system, no additional step towards a full federal state will ever be implemented.

[00:50:19.790] – Grumbine

That’s a very powerful point.

[00:50:22.580] – Cattaneo

United States of Europe guys should recognize.

[00:50:27.450] – Grumbine

So let me ask you the final couple of questions I have for you. I guess the question I’m having because I think I understand everything, but I want to tie this together. Would it be correct to describe the fiscal money proposal as a way to change the euro from being a single currency to a common currency?

[00:50:46.650] – Cattaneo

Yes, because at the end of the day, you’ll have the euro as the currency shared by 19 countries. Possibly more in the future. Who knows? And national fiscal money is an additional tool in order to inject additional purchasing power in specific countries when needed. And remember that fiscal money is euro-denominated, is a euro-denominated security at the end of the day, so you are not changing much.

You’re just introducing a new kind of security which is not so difficult to be made, it’s something which happens every day in financial markets. You know, what the real political issue is, is that if you introduce fiscal money, single countries recover power, and, of course, if you are pro-European integration, you don’t want to have that. You want all the power to be ceded to Brussels.

And that’s something which I understand is a major political stumbling block, but if the European Union does not work properly and everybody understands that is doing very badly in several respects, of which economy is just one, you have to overcome this issue. That’s my point.

[00:52:18.360] – Grumbine

I tend to be very incisive and sometimes even some see as extreme, but I see this as a bit of economic warfare. I don’t see this as a benign thing. I see this as harming the southern European states. And when you see harm being done, something should be done immediately. And it sounds like the fiscal money that you refer to is an opportunity to counteract the negative effects of predatory economic structures. What do you think of the political constraints here? Is this a way of countering an economic warfare?

[00:53:00.140] – Cattaneo

Well, I don’t know whether it’s appropriate to call it warfare. I prefer to think and speak in terms of deficiencies and dysfunctionalities. The entire system doesn’t work as it is today. Of course, in terms of power struggle, there are certain countries and certain segments of the society who are benefiting out of the current framework, you know. Even a very dysfunctional system is beneficial to somebody.

And that’s the reason why changing course is difficult. You know, this kind of state to be taking a different direction is a very major one. That’s the reason why it is so difficult pushing from a political standpoint. On the other hand, I think that the euro breakup might happen, but there are technical hurdles which makes it much more difficult.

Remember that a kind of similar framework was already in place from 1979 until 1992. It was the European Monetary Union. It was basically a fixed exchange rate system, which does not imply, however, eliminating national currencies. The system broke up. Breaking up the European Monetary Union was a major disruption but was possible, not so difficult to achieve it.

Breaking up the euro has a much more difficult fissure, and even people who believe that sooner or later the euro should be broken up were not able to provide a clear path from a technical and operational standpoint in order to achieve it. That’s the problem. And that’s one that led me to think about something different eight, nine years ago. And that’s where I am.

[00:55:07.830] – Grumbine

This was absolutely fantastic, Marco. I really appreciate this. Can you let our audience know where we might find more information about your fiscal policy? Is there anything out there that people can look at and read?

[00:55:21.870] – Cattaneo

Well, yes, I personally run a blog, which is mainly in Italian, but includes also articles written in English. And the title of the blog is Basta con l’Eurocrisi, which means Down With the Euro Crisis. And if you go inside it, I have basically something around 1,000 articles in a matter of eight years which deal mostly with the issues related to the European Union and the Eurozone and the fiscal money proposals. Again, 90 percent are in Italian unfortunately, but at least 10 percent are in English. So there is a blog which can be read about the matter.

[00:56:10.720] – Grumbine

Well, we can also do translations, so that is not a problem at all. I want to thank you so much for joining me today, Marco. This has been incredibly educational for me and I believe our audience really benefits from this. So folks, just so you know, our problems are global. This isn’t just a United States thing or a European thing or an Australian thing. This is a global thing.

And together we learn from each other and we realize that some of the same problems we have in our countries are the same problems others are having. And when we come together, we can come up with solutions that solve these problems for all. So, again, I want to thank you, Marco, so much. And folks, thank you so much for tuning in to Macro N Cheese. I’m Steve Grumbine with Macro N Cheese. We’re out of here.

[00:56:59.260] – Ending credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by our Real Progressive Patreon account. If you would like to donate to Macro N Cheese, please visit Patreon.com/realprogressives.