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Can Italy Save Europe?

Quite possibly not — in which case Europe as we know it could be lost.  The FT reports:

If Italy becomes infected…the Eurozone has neither the financial nor the political resources to go to Rome’s rescue. Italy must inoculate itself against the sovereign debt virus. Yet an incompetent political system has left it paralyzed in the face of an abrupt re-pricing of Italian risk by increasingly nervous investors. A new bout of fiscal temporizing will not solve Italy’s problem this time.

Since the start of July, Italy has been hit by a double collapse – of global economic growth prediction and of the credibility of its policy-making…

The austerity package on offer is likely to worsen the Italian economy rather than accelerate growth. This has been the experience in Greece and Portugal; there is no reason for Italy to be different, especially with key export markets in Europe and the US heading into a recession.

Tick, tick, tick.

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  • Kris

    Italy’s problem is an “abrupt re-pricing of Italian risk by increasingly nervous investors”. And yet one hears no end of Americans claiming that not only is the current U.S. debt sustainable due to the low interest rates, but that those low rates should be taken as an incentive to go even deeper into debt. Ignorant people such as myself worry about what will happen if the interest rates go up, but we are apparently just being silly; what are the odds anything like that could happen?! After all, who could ever doubt the Full Faith and Credit? And anyhow, what other choice do them foreigners have?

  • Jim.

    Germany’s austerity package worked well. What can we learn from the differences in those situations?

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