A loyal MR reader asks:
When does Italy leave the EC? What are the likely costs of doing so?
Italy won’t leave the EC anytime soon, why should they? I also don’t think Italy will leave the Eurozone. It does give them an overvalued currency, but that is only the nominal exchange rate. In the long run prices of exports can fall so the real exchange rate ends up where it should be. In other words, the problem will cure itself with the passage of time, noting that Italian wages and prices are often sticky. But everything adjusts, sooner or later. If Italy can live with the Euro today, tomorrow will be just a wee bit easier.
Leaving the Eurozone would make it very hard for Italy to borrow at good rates again. Plus the real value of their debt would rise considerably. Nope, I don’t think they will do it.
#whatever in a series of 50.
The question was crazy to begin with. Probably the loyal reader doesn’t know Italy was one of the founders of the EC / EU. It’s like asking when LA Lakers will leave the NBA.
Jay, did they leave?
Not that I don’t agree with you in the Joneses / heat shield /cheap finance part.
Anyway, one thing that is easily forgotten when talking about Italy is how much the different regions that includes are, well, different. Sclerotic Italy? Maybe. But then why is Lombardia’s GDP per inhabitant higher than South East England’s?
Italy will not leave the EU, ever.
When Silvio Berlusconi was PM, he did make some noises about the
possibility of Italy dumping the euro and going back to the lira.
But, as Tyler accurately notes, this would involve facing substantially
higher interest rates for the large amounts of borrowing the Italian
government engages in. Berlusconi’s remark in retrospect looks more
like the sort of “Fed-bashing” one occasionally sees in the US when
this or that politician blames (sometimes not unreasonably) bad
economic conditions on the Fed. The euro and the ECB make a good
excuse, but don’t look to Italy to leave the euro anytime soon.
“did anybody in the 1980s suggest that Sicily or Lombardia should leave the lira-area”
Yes: the Northern League, the separatists,….
Italy was accepted into the EU reluctantly by France and Germany because Italy has 110% public debt. So far the Prodi govt did not enact the fiscal measures that he was once advocating to other countries as EU president. He did not cut taxes yet and he produced some fake liberalizations, but we all hope that that will change.
On the other hand, italians have been engaged in patriotic protectionism (not that France didn’t either). When will this change?
Geramany only brought the budget deficit and the debt /gdp below the EU level, last year .The same is true for France.Both were in the excessive deficit procedure.Of course , only when Italy fails there is an international scandal.
And nobody remember “il sorpasso”,when Italy overtook the UK in the late 1980s.in GDP per head.I know it was due to the accounting of the black market economy, but ..
And the unemployment rate of Lombardia is among the lowest in the world if not the lowest.
Certain commentators should probably investigate the difference between EU and the EMU.
States with a stronger prospective fiscal position arguably have the greater incentive to leave EMU. Will the no-bailout clause really be enforced? Benard Connolly has done some interesting work here.
I second Edgardo, what’s your timespan for “tomorrow”. As Keynes said, in the long run we’re all dead. I’m not aware of how real exchange rates can adjust within the Eurozone without declines in nominal wages, which could take a rather long while.
Cyrus,
There is no legal mechanism for kicking a nation out of the euro.
Will not happen. However, Italy could end up facing various sorts
of unpleasant sanctions if its fiscal profligacy gets too blue.
That might push it to leave, which remains not entirely out of
the realm of possibility, if still pretty unlikely anytime soon.
Would ever be worth thinking about the possible reaction of the *animal spirits* of the financial markets might be, if Italy leaves the EMU?
Would not it create a “case?” Italy begings, other could follow the same path. And in that case, what about the financial stabiltiy of the entire Eurozone?
Would the financial investors keep still investing in the Eurozone?
– J.C.
Italy will not leave the EU, ever.States with a stronger prospective fiscal position arguably have the greater incentive to leave EMU.
Farming World of Warcraft Gold is the bane of many players lives, with the new epic flying mounts costing over 5000
wow gold you are talking some serious grinding time. Fortunately in the World of Warcraft’s The Burning Crusade Expansion the new Outlands has a host of areas which can offer you a surprising amount of cheap wow gold, if you have your wits about you that is.World of Warcraft gold, WoW accounts & items are available on all servers.
Make sure you check your server for sales on WOW gold, buy wow gold, accounts & items.
Why risk buying WoW gold from unknown sellers & stores when Team-VIP delivers instantly?
Comments on this entry are closed.