November 30, 2010

The Euro break up edges closer

Italy was not hit as badly as the rest of the Eurozone by the resent economic troubles. It did not suffer the same huge drop in growth or bursting of a property bubble, but that is because Italy has been bouncing along the bottom in a permanent slump for years. It is one of the countries that needed the low interest rates to keep its economy alive, while those same low interest rates were blowing up enormous property bubbles in Ireland and Spain. What it needed, and still needs, is to get out of the Euro and devalue in order to try and regain some of the competitiveness that it has been loosing against Germany for the last decade. This has been the case for a long time. The last time that it bubbled up to the surface was back in 2005 and some Italian politicians were even willing to say it, something that seems unthinkable to the political class of any other EU country. However if Ambrose Evans-Pritchard of the Telegraph is correct and the debt contagion is starting to effect Italy then this time they might actually get the medicine they need by being forced out of the Euro. There is absolutely no way that the other EU members could raise enough money to bail out the third largest Eurozone without it dragging them down as well. Germany might stand to gain by a little chaos around the edges of the Eurozone keeping the price of the Euro down to aid its manufactures, but it stands to loose everything if Italy sucks it down with it into bankruptcy.


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