" If the Italian government has to continue paying a seven or even eight per cent interest rate to finance its debt, the country’s total debt will grow faster than its annual output and therefore faster than its ability to service that debt. If investors expect that to persist, they will stop lending to Italy. At that point, it will be forced to leave the euro. And if it does, the value of the “new lira” will reduce the price of Italian goods in general and Italian exports in particular. The resulting competitive pressure could then force France to leave the euro as well, bringing the monetary union to an end."
"But this need not happen. Italy can save both its own economic sovereignty and the euro if it acts decisively and quickly ..."
by doing guess what
" balance its budget.....It already has a “primary budget surplus”….
if it cuts spending and raises revenue by a total of just three per cent of its GDP....
If reforms to strengthen incentives and reduce regulatory impediments raise the growth rate to two per cent
that together with a long-term balanced budget
would cause Italy’s public debt to decline from today’s 120 per cent of GDP to about 65 per cent over the next 15 years
if Italy can borrow at the 4% it borrowed at before the crisis began…."
marty
since this can't be allowed to happen
italy " .. forced to leave the euro.
because "... the value of the “new lira” will reduce the price of Italian goods in general
and Italian exports in particular."
and
"The resulting competitive pressure could then force France to leave the euro.... bringing the monetary union to an end."
it won't ..regardless of italian budgetary policy
result the italian borrowing cost will be back in the 4's within a matter of quarters not years
