The country must decide wher it wants to be a member of a monetary union with fixed basic rules. Intervening now would be wrong. 31 May 2018, 7:52 Uhr187 comments
The euro crisis is back and with Italy it has captured one of founding members of European Union. Interest rates on Italian government bonds are rising, and Economist and former president of Ifo Institute, Hans-Werner Sinn, is now holding an exit from country “probable”.
if ( typeof AdController !== ‘undefined’ !window.Zeit.isMobileView()) { if ( !document.getElementById( ‘iqadtile8’ ) ) { var elem = document.createElement( ‘div’ ); elem.id = ‘iqadtile8’; elem.className = “ad ad-desktop ad-desktop–8 ad-desktop–8-on-article”; elem.setAttribute(‘data-banner-type’, ‘desktop’); document.getElementById(‘ad-desktop-8’).parentNode.appendChild(elem); AdController.render(‘iqadtile8’); if ( window.console typeof window.console.info === ‘function’ ) { window.console.info(‘AdController ‘ AdController.VERSION ‘ tile 8 desktop’) } } } if ( typeof AdController !== ‘undefined’ window.Zeit.isMobileView()) { if ( !document.getElementById( ‘iqadtile3’ ) ) { var elem = document.createElement( ‘div’ ); elem.id = ‘iqadtile3’; elem.className = “ad ad-mobile ad-mobile–3 ad-mobile–3-on-article”; elem.setAttribute(‘data-banner-type’, ‘mobile’); document.getElementById(‘ad-mobile-3’).parentNode.appendChild(elem); AdController.render(‘iqadtile3’); if ( window.console typeof window.console.info === ‘function’ ) { window.console.info(‘AdController ‘ AdController.VERSION ‘ tile 3 mobile’) } } }
It doesn’t have to be hot. After all, it would not be first time that re was any sense of it, but it has already predicted demise of Germany. It happened differently n. Neverless, events of past few days raise question of wher Italy can actually be saved by remaining Member States of monetary union.
The answer is: rar not.
That does not even have anything to do with financial issues. It is true: Italian economic performance is about ten times size of Greek and country’s national debt amounts to more than 2 trillion euros. That would go beyond limits of European bailout umbrella.
Five before 8:00 subscribe to morning column of Time online – from Monday to Friday by email. Sign up now
This is not number, however, because Italy does not have to finance its entire national debt in one shot. What is relevant is only what country has to spend on interest payments and on renewal of expiring loans. That’s about 200 billion euros a year.
In addition, European Central Bank has also purchased Italian government bonds as part of its bond programme. Today, it owns about one fifth of outstanding Italian sovereign debt. The central bank has already announced that it will return funds for purchase of Italian bonds, which are freed by expiry of already acquired bonds. These amounts would also have to be deducted from rescue sum and reduce Italy’s financing needs.
if ( typeof AdController !== ‘undefined’ !window.Zeit.isMobileView()) { if ( !document.getElementById( ‘iqadtile4’ ) ) { var elem = document.createElement( ‘div’ ); elem.id = ‘iqadtile4’; elem.className = “ad ad-desktop ad-desktop–4 ad-desktop–4-on-article”; elem.setAttribute(‘data-banner-type’, ‘desktop’); document.getElementById(‘ad-desktop-4’).parentNode.appendChild(elem); AdController.render(‘iqadtile4’); if ( window.console typeof window.console.info === ‘function’ ) { window.console.info(‘AdController ‘ AdController.VERSION ‘ tile 4 desktop’) } } } if ( typeof AdController !== ‘undefined’ window.Zeit.isMobileView()) { if ( !document.getElementById( ‘iqadtile4’ ) ) { var elem = document.createElement( ‘div’ ); elem.id = ‘iqadtile4’; elem.className = “ad ad-mobile ad-mobile–4 ad-mobile–4-on-article”; elem.setAttribute(‘data-banner-type’, ‘mobile’); document.getElementById(‘ad-mobile-4’).parentNode.appendChild(elem); AdController.render(‘iqadtile4’); if ( window.console typeof window.console.info === ‘function’ ) { window.console.info(‘AdController ‘ AdController.VERSION ‘ tile 4 mobile’) } } }
Thus, existing resources of existing rescue umbrellas – essentially Luxembourg-based European Stability Mechanism and International Monetary Fund – could be financed by a programme that would take Italy two or three years be financed until situation in markets has calmed down and country can lend itself cheap money again. So, contrary to what is often argued, it is not case that Italy cannot be saved in principle.
Worry that Italy is leaving euro
The problem is that, in current situation, it would be wrong to base Italy on it. Investors in financial markets did not start selling Italian government bonds out of sheer lust for chaos. They fear that country is leaving monetary union and that y are getting ir debts back in lira and not in euros.
if ( typeof AdController !== ‘undefined’ !window.Zeit.isMobileView()) { if ( !document.getElementById( ‘iqadtile5’ ) ) { var elem = document.createElement( ‘div’ ); elem.id = ‘iqadtile5’; elem.className = “ad ad-desktop ad-desktop–5 ad-desktop–5-on-article”; elem.setAttribute(‘data-banner-type’, ‘desktop’); document.getElementById(‘ad-desktop-5’).parentNode.appendChild(elem); AdController.render(‘iqadtile5’); if ( window.console typeof window.console.info === ‘function’ ) { window.console.info(‘AdController ‘ AdController.VERSION ‘ tile 5 desktop’) } } }
Now financial markets are not measure of all things. They tend to exaggerate and often make things even worse. This is exactly why rescue screens are in place: Ideally, y are stretched to prevent a downward spiral if speculative attacks threaten to become dependent. This usually works as well.
An intervention would be wrong
In specific case, however, reaction of investors is rar rational: y are leading populist coalition parties to see what would happen if Italy gives up euro. That is why it would also be fatal if it were now to intervene to push Italian interest rates back. Because that would be signal to Italian government that it can afford everything – even a game of fire.
You can talk about a lot with Italy. The country is suffering from increase in migration, which has also contributed to German refugee policy. And Italian politicians are not entirely wrong when y argue that European budget rules are not flexible enough. But it must also be clear: a monetary union cannot exist without a rule. and wher you want to be a member of such a union, Italians must decide for mselves.
Italy additional Links
European Central Bank The persistence and signalling power of central bank asset purchase programs
European Stability Mechanism Lending Toolkit
