Bill Emmott is right: leaving the euro makes no sense for Italy (“ Driving Italy out of the euro makes no sense at all”, May 30). With €2.3tn of public debt, any government that left the euro and brought back the lira would very quickly find itself unable to borrow in the markets, unable to service its debt, and insolvent. After a desperate run on the banks, many of which are saddled with large amounts of non-performing loans and in precarious health, the banking system would shut down.
Italians, who hold most of the public debt as well as those with deposits in the banks, would demand that they be paid. The government would look abroad for help but would find the decision to give up the euro had foreclosed any assistance from the European Central Bank, the European Stability Mechanism or the IMF. Leaving the euro is not an option.
But Graham Hacche (Letters, May 31) is also right: Italy has a competitiveness problem — one that is reflected in an unemployment rate for the past five years over 11 per cent, an employment rate of 58 per cent, the second lowest (after Greece) in the EU, and a rate of growth that averaged roughly 1 per cent in 2014-17 and is estimated to be 1.5 per cent this year — the lowest in the EU.
One might think that with double-digit unemployment, an unusually low rate of employment, and a growth rate that barely exceeds 1 per cent, Italy might be pursuing an expansionary fiscal policy. But in fact its budget deficit has been 3 per cent or less of gross domestic product since 2013 and is estimated to be 1.7 per cent of gross domestic product this year, one of the lowest in the EU.
Leaving the euro is not an option. But Italy could and should do much more with fiscal policy than it is now doing to generate growth and employment.
David R Cameron
Professor of Political Science,
Yale University, CT, US
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