How Italy overcame Germany's opposition and joined the euro

How Italy overcame Germany's opposition and joined the euro


To most outside observers, Italy’s dogged candidacy to join the euro in the mid-1990s looked like the proverbial moonshot. The country was recovering from a corruption probe, was plagued by political instability, and was far from meeting the single currency’s economic parameters. In “La Partita Dell’Euro, Italia e Germania tra cronaca e storia” (EGEA, 2022), diplomat Mauro Battocchi gives readers an insider’s view of how Italian politicians and diplomats managed to overcome Germany’s opposition to having Italy as a founding member of the euro. Battocchi served at the Italian Embassy in Bonn from 1995 to 1999 under Ambassador Enzo Perlot, who spearheaded Italy’s drive to join the euro. Battocchi’s 25-year career as a diplomat has taken him to Tel Aviv, Bonn, San Francisco, and now Santiago de Chile, where he was named Italian Ambassador in 2018. He holds an undergraduate degree in Economics from Bocconi University and a master’s degree from the University of Princeton.
Let’s go back to the mid-1990s when Italy was in the process of joining the euro. You arrived in Bonn in 1995. What was the climate like? 
Italy was in the middle of significant changes, with the “Mani Pulite” corruption probe, the end of a political system. The country had come to the brink of bankruptcy in 1992 and the lira had been ejected from the European monetary system. A large part of public opinion saw Europe as a life raft. The 1990s were characterized by significant legal, economic, and administrative reforms. These were not always perceived outside our borders. The situation for us in Bonn was really tough because the context was unfavorable to Italy. In Germany, overseas, Italy was perceived as an unstable country, and therefore unreliable. Our candidacy for the single currency was worrying many.
It was clear to us that Italy had made and was making a lot of progress. But the attitude outside our borders was, “watch out, we don’t trust you yet.” I try to show how political will and a small team of diplomats in Bonn and in Rome were able to overcome this challenge, this lack of trust.

The role of diplomacy is often not visible from the outside. What role did it play in Italy’s euro entry?
My goal is to demystify, or remove a few of the more esoteric aspects of diplomacy, and show there are flesh and blood people who talk to one another, who have to draft agreements, and who have to persuade other people like them. So it’s a very practical, yet demanding exercise, with nothing abstract about it. There is a wealth of examples in the book. At the time, we strove to be as invisible and transparent as effective. Diplomacy is at the service of the republic, of the community. And the motivation driving these people is to do good for others, In a way that may not always be visible.  

You recount a little-known behind-the-scenes moment when Carlo Azeglio Ciampi, who was Treasury Minister at the time, made a series of urgent late-night phone calls on March 24, 1998, to save Italy from being left out of the single currency. What happened?
According to the Maastricht Treaty for the monetary union, European central banks united in a governing council of the forerunner of the European Central Bank were required to sign off on the public finances of member states wanting to join the single currency by March 24, 1998. On that day, central bankers approved a draft statement saying they had was a “serious concern” about Italy. Such an opinion would have given Germany’s Constitutional Court the grounds to rule that the single currency violated Germany’s constitution. It was a very serious risk. And as fate would have it, Carlo Bastasin of Il Sole 24 Ore (a fellow Bocconi alumnus) got wind of the damning statement and published an article in the paper which appeared in the news kiosks in the early morning of March 25.  Meanwhile the meeting’s outcome was also filtered to Ciampi through back channels.  Ciampi was furious.  He was a former partisan and a man with nerves of steel. He picked up the phone, and he told central bankers Wim Duisenberg and Hans Tietmeyer that if the Italian economy went down the drain, history would hold them responsible. As simple as that.
And after that, it was panic among central bankers. They called an emergency meeting the next morning, and changed the wording from “serious” to “ongoing.”  And “ongoing” is a classic diplomatic ambiguity. This formula enabled the central bankers to save face, and the process to move ahead. If those leaks hadn’t happened, and Ciampi hadn’t acted, how would the story have ended? We don’t know. My goal was to bring readers behind the scenes, and show that when these decisions get made there are all sorts of moments of rage, tension, and euphoria. Ultimately, leaders can make a difference.

Let’s rewind for a moment.  You say in your introduction that Germany wanted the euro so that it could face the challenge of globalization. Today we mostly think about the euro as a step to an “ever closer political union.” How much did globalization weigh?
A lot. The fall of the Berlin Wall led to the reunification of Germany. The EU partners endorsed it on the condition that Germany accepted a measure of shared sovereignty. Not political for the moment, but monetary. At the same time, China was on track to joining the WTO in 2001. People in business in the world realized that all the barriers were falling and that Germany and Europe needed to compete on equal terms with countries that had a price advantage and strong demographic growth. Europe needed to be fit for this challenge. And Germany’s large companies realized this the most.
The monetary question had to be solved once and for all, to end competitive devaluations and reform an economic system that was weighed down by institutions and structures that were created for closed economies. By September 1997, the German government began defining Europe as “a community of reforms”. The goal was to work together towards change, because China and the global world would be arriving tomorrow. And they really were! This is reflected in the book’s title, “La Partita dell’Euro.” Was it a match between Germany and Italy?  Yes, but you could also see it in another way, between Europe and the globalized world. And at that moment, we needed to decide: who would be fit to play?

While you were in Bonn, Germany changed its view on Italy’s euro candidacy. Did you see it happening?
A big moment of change was certainly the first part of 1997. It became apparent that the unification of Germany was a huge burden for public finances. The State had a pile of investments to make. Social welfare payments to the citizens in the East were costly. At some point it became clear that Germany’s itself would not comply with the Maastricht criteria of financial virtue.  This made it much more difficult for the Germans to keep Italy out. When they realized they needed to struggle to get fit as well, their leaders thought, “how can we tell the Italians to stay out?”. Germany carried out its own structural reforms in the early 2000s, under chancellor Gerhard Schroeder. But from mid-1997 the rhetoric changed. The public discourse started to evolve. Ostracism toward us subsided. We started breathing a sigh of relief.  

Are there any similarities between Italy’s effort to join the euro and the challenges it now faces with the National Recovery and Resilience Plan (PNRR)?   
The reflection I want to leave the reader with is: “did we realize in the second part of the 1990s what it means to be part of the euro in terms of modernizing our country?” Twenty years later, we have the Next Generation EU and the so-called PNRR, another big reform effort driven by Europe. We have to ask ourselves the same question: “what does it imply to compete on a global level as a country, a ‘Sistema Paese’ as well call it in Italian? How can we preserve our standard of living being part of the euro area in the light of the global challenges we face?”
Now that the exchange rate is now fixed, the country must be able to manage its ability to compete and tackle its structural handicaps at all societal levels. I hope that the book can help people reflect on how our entire society must become increasingly modern and efficient to support our ability to prosper in the future. Living in Latin America makes you realize the extraordinary things we have in Italy. They are not guaranteed forever. We need to earn them every day, in a collective effort, where everyone needs to do their part.

by Jennifer Clark

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