When does Italy break free?

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.


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