Italy’s historic responsibility, di S. Collignon

by Stefan Collignon

Italy is part of Europe. It has always been. Today, it risks destroying it unless a fundamental change occurs in Italian political life. The greatest danger for the euro is a spillover from the Greek debt crisis to Italy. The European Council has taken measures to ring-fence Greece, but its success will depend on the implementation of Italy’s reform program. The danger is huge because Italy represents 17% of the Euro Area’s GDP, while Greece counts for hardly 2.5% . The outstanding public debt of Greece is €340bn (4.5% of the Euro Area’s total outstanding debt), but in Italy it amounts to €1912bn, which is 24% of the Euro Area debt. The European Union may be able to bailout Greece, but it could never do this for Italy. Even the leveraged EFSF bailout fund will raise only €1000bn according to recent decisions. If Italy would ever default on its debt, it would pull in not only Spain but also France and the resulting global financial devastation would be the economic equivalent of a nuclear war.

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