In collaboration with Dr Robert Hancké of the London School of Economics, Australia’s No. 1 retail FX provider,1 IG, has considered...
Breakaway region Sicily
Parent country Italy
Old currency Euro (EUR)
New currency New Sicilian Lira
Economically weak regions can potentially make themselves more competitive by creating their own currency. But does Sicily have what it takes to make the most of financial independence?
A weaker currency, with a lower exchange rate, could instantly improve Sicily’s export competitiveness
Since much of Sicily’s economy is in low-productivity sectors such as construction, agriculture, and public services, an independent currency is likely to lead to a significant drop in living standards
It’s unlikely that Sicily’s example will be followed by other Italian regions; Sicilian independence would probably not cause the country to break up
But Italy itself might follow Sicily’s example and leave the eurozone if the exchange rate depreciation bears fruit
Change in value of euro (EUR) since 2000, based on SDRs per currency unit source
Dr Robert Hancké
“The region has relatively few potential growth industries of the kind for which a softer currency would be more appropriate.”
A break-up of the rest of the country is unlikely, not least because Sicily is an island and therefore has no land borders with the rest of Italy
It might trigger similar reactions from other weak regions in Europe that feel trapped in their current currency regime
The Sicilian economy may be structurally too weak to benefit from an autonomous currency
Problems of resource diversion through corruption are likely to remain a significant issue
