Italy should bring back the lira, says minister

The possibility of a break-up of European monetary union shot back up the agenda yesterday after an Italian minister said the country should consider ditching the euro.

The possibility of a break-up of European monetary union shot back up the agenda yesterday after an Italian minister said the country should consider ditching the euro.

Roberto Maroni, the Welfare Minister, said the government should hold a referendum on whether to revert to the lira, blaming the single currency for Italy's woes. His comments came days after the German government was forced to deny as "absurd" a report that its Finance Minister and central bank governor have discussed the possibility of disintegration of the euro.

Mr Maroni's intervention caps a turbulent week for the euro, which plunged after voters in France and the Netherlands rejected the European Constitution.

The prominent figure in the euro-sceptical, right-wing Northern League Party, a minor partner in the government, told La Repubblica the euro had amplified Italy's problems. The euro "has proved inadequate in the face of the economic slowdown, the loss of competitiveness and the job crisis", he said.

"The Italian people could be asked to approve the reintroduction of the lira."

The spread between 10-year Italian and German bonds - investors' only method of discriminating between members of the euro - widened following his remarks. A spokesman for Silvio Berlusconi, the Italian Prime Minister, rejected Mr Maroni's remarks. "I have no doubt that the proposal is not shared by ... the Prime Minister."

Analysts said the chance of a break-up of the euro was close to zero. "But this will not be the last time some market participants think about the failure of EMU," said Jörg Kraemer, the chief economist at HVB in Frankfurt. "Such speculation will only cease when Europe becomes ... a political union."

Lorenzo Codogno, the co-head of European economics at the Bank of America, said politicians would probably pursue more populist policies after the defeat of the liberal economics in the constitution. "This would push Europe even further away from the kind of supply-side reforms that are needed to stimulate growth," he said.

Meanwhile, the European Commission is to reprimand Italy for breaching EU deficit rules. But Mr Berlusconi has rejected measures to cut the deficit.