Comments on: Italian Referendum Call

By: Asdubale

Asdubale — Mon, 20 Jun 2005 21:05:44 +0000

Mabbasta co ste sozzerie :E

By: Edward

Edward — Fri, 03 Jun 2005 20:38:09 +0000

Essentially this isn’t the first time. Italy was forced out of the EMU in 1992, and they could be forced out of the euro. The absence of ‘political consensus’ immediately and obviously increases the possibilities of this. By how much: I couldn’t tell you. Time and reality will: theory is grey and life is green.

By: EU-Serf

EU-Serf — Fri, 03 Jun 2005 20:38:01 +0000

The fastest, although temporary way to deal with Italy’s problems is a devaluation. It doesn’t solve the underlying problems but a year before an election it could result in a big change of political fortune.

Of course a devaluation is not currently possible.

PS Raising taxes in a recession is a pretty fast way to put the patient down.

By: Edward

Edward — Fri, 03 Jun 2005 20:35:59 +0000

“How exactly would those be solved by leaving the Euro ?”

A quick answer: it wouldn’t.

Now…….. let’s be completely clear, I am not advocating Italy leaving the euro. I am saying that economic problems might force them out. Which ones, well not the ones you mention.

Basically, if we take the low growth, government and private debt, and balance of payments issues. Having their own currency back would help them deal with these issues: it would be a huge dose of ‘creative (balance sheet) destruction. If they got their own currency again, and could control their own debt and inflation levels, then they could massively devalue, and burn off debt with inflation. This is not a cure for low growth, and certainly not an encouragement for research and development, probably a lot of bright young people would leave. But it might be tempting for Italian politicians to try it. That is what I am saying.

By: khr

khr — Fri, 03 Jun 2005 19:03:04 +0000

…sectors for which global demand is growing below average…low levels of R&D investment, low human capital, low competition…

How exactly would those be solved by leaving the Euro ?

Shouldn’t Italy be investing to remedy those problems instead ? If neccessary, by raising taxes, especially on those that can afford the extra load ?

Not that I would expect Berlusconi to do any of that.