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Paolo Savona, who will serve as Europe minister in Italy’s new populist government, has described the euro as a “German cage”. Policy set in Brussels and Berlin constrains democratically elected governments’ room for manoeuvre, the argument goes.

The problem with this analysis, argues Gideon Rachman in his column, is that the biggest constraint on Italy’s ability to pursue looser fiscal policy is not the EU’s rules, but the level of the country’s debts. What is more, it is not just the Italians who are locked in the cage. Germany may have prospered since the single currency was launched, but its future is inextricably bound up with that of its less fortunate neighbours.

Lawrence Summers, former US Treasury secretary, argues that the Trump administration’s chaotic approach to trade policy violates every rule of good strategy.

Constanze Stelzenmüller welcomes Angela Merkel’s belated response to Emmanuel Macron’s bold initiatives on reform of the eurozone.

Sam Theodore of Scope Ratings writes that there are good reasons why there remains little appetite for large bank mergers and acquisitions.

Hilary Cottam, author of Radical Help, argues that Britain’s welfare state was designed for a different age and needs to be completely overhauled.

What you’ve been saying

Collective vision needed to help the displaced poor— letter from David Miliband:

The reform agenda for the international system is actually clear: make cash distribution the first option for the displaced, transform educational investment to the half of refugees who are children (current spending levels are 2 per cent of humanitarian expenditure) and offer a new deal to refugee-hosting states to give macroeconomic support in return for employment opportunities for refugees. Both the Sustainable Development Goals process launched in 2015 and the Global Compact for Refugees being finalised this year provide the global platforms to bring together states, aid agencies, financing institutions and the private sector around the collective vision to ensure millions more are not left behind. Until global diplomacy to stop conflict is given a boost, such a coalition will be sorely needed.

Comment from Dr Havoc on Lack of European reform, not Italy, will break the eurozone:

Germany has no hope of holding out on Macron’s reforms. Austerity has lost the argument. The internal devaluation came at too high a cost and too little benefit. All it brought was misery and instability. The fig leaf that the EU has so far thrown on reform is just not going to cut it. A nasty fight is coming on eurozone reform and Germany has spent all its powder on needlessly destabilising the entire EU south. Now the backlash is coming and Germany will make concessions. They will have no choice.

Italy’s fiscal policy must do more to generate higher growth— letter from David R Cameron:

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.

Today’s opinion

Donald Trump’s trade policy violates every rule of strategy
From tweet to tweet, official to official, nobody can tell what his priorities are

Angela Merkel stretches out a hand to her neighbours
Germany’s chancellor offers a unifying economic plan to mollify a divided Europe

Italy, democracy and the euro cage
It is not just the Italians who are trapped by the single currency

Refresh Britain’s threadbare postwar welfare state for today
A focus on what communities need shows human connection is at the heart of progress

Technology suppresses banks’ appetite for mega-deals
Wisely managed lenders seek efficiency through fintech or digital capacity

Free Lunch: Visa glitch shows it is high time for digital cash
Arguments for central bank electronic money also support full-reserve bank reforms

FT View

FT View: Trumpist diplomacy shows its true colours
The US ambassador to Germany sides with the populists

FT View: Sajid Javid’s opportunity to rethink UK immigration policy
The home secretary can break with the errors of past policies

The Big Read

The Big Read: The mystery trader who roiled Wall Street
Former Blackstone executive used complex credit derivatives to become a feared hedge fund manager but left behind a trail of recriminations

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