Book Talk: Former central banker takes on the Eurosceptics

MILAN Thu May 22, 2014 12:02pm EDT

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MILAN May 22 (Reuters) - It was frustration with the quality of debate about Europe that prompted Lorenzo Bini Smaghi to embark on a myth-busting mission.

In his new book, published in Italian under the title "33 false verita' sull'Europa" or "33 False Truths About Europe", the former European Central Bank policymaker sets out to expose the flaws in many stereotypes surrounding the EU.

It is a timely read, given that voters in 28 countries are electing a new European Parliament this week after campaigns notable for strident euroscepticism from both right and left.

To rubbish the idea that Germany holds the ECB hostage, Bini Smaghi starts with arithmetic.

He argues that Germany, whose economy accounts for 30 percent of the euro zone, has never had more than two members sitting on the 24-strong ECB council. He recalls that Germans voted against key decisions, such as bond-buying operations in May 2010 and August 2011, that were approved anyway.

The former Italian Treasury official rebuts the idea that the euro zone should be split in two, or the mantra that European budget rules are choking off the Italian economy.

Voters in Italy, one of the founding members of the Union, have recently turned against Brussels-led policies that are considered the root cause of the country's decline.

This radical change of heart, says Bini Smaghi, is not to be underestimated by European partners.

"Unless Italy changes, it is difficult to lay the foundations to make significant steps in the EU integration process," Bini Smaghi writes.

He spoke with Reuters about the book, published in April by Il Mulino.

Q: When did you come up with the idea for this book?

A: The idea came to my mind at the end of last year, watching political debates on TV.

I listened to many inaccurate assumptions about Europe during these talk shows, and many times no one, even pro-European people, dared to put these assumptions to the test, allowing these theories to become half-truths.

Q: What is, at the moment, the most dangerous assumption on Europe?

A: The most risky is the idea that by leaving the euro, Italy would recover its sovereignty. It is just the opposite, because a euro exit would lead to the collapse of the Italian financial system and then Rome would need external aid under tough conditions.

Q: In 2011, at the peak of the sovereign debt crisis, there was speculation that Italy, as well as other European countries, was preparing contingency plans in case of a Greek exit from the currency bloc. Is this true?

A: I did not hear anything of such plans, at least until the end of 2011, when I left the ECB.

I have never believed in an exit of Greece from the currency bloc. Such a scenario would have caused heavy losses for everyone, including the ECB, which had bought a huge amount of Greek government bonds in the previous months. (Editing by Mark Trevelyan)

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