What happens if italy fails

But that stalled after President Sergio Mattarella rejected their proposal for an economy minister whose writings have entertained the idea of leaving the euro. Mattarella said that such a drastic idea needed to be debated openly during a campaign, not brought in through the back door.

A poll from Oct. And the possible consequences of leaving are sobering. Investors, fearing their holdings of stocks or real estate might be switched into a new Italian currency that would be worth less, would sell, causing markets to plunge. Italian companies could get into legal disputes with foreign suppliers about what currency to pay in. Bankruptcies and lawsuits would spread. The Eurozone as a single currency bloc may perhaps be able to survive in some form, but in order to do so, it must, at least temporarily but still, for a long time, possibly decades : a embrace the idea that it has failed to be the above-mentioned exclusive club of well-functioning economies; b consider the Stability and Growth Pact as overhauled and no longer applicable; c agree on a new identity and mission; d agree on a new legal and political structure, one which goes beyond the concept of separation of national budgets.

The last point is the most difficult one. In principle, debt pooling could be agreed if there were a shared vision of what to do in the future in terms of macroeconomic and fiscal policies, and if there were enough chance of success.

Such chances are not visible to most people. Besides, there is no clear political vision for further integration of EU or Eurozone members, as it is rather unavoidable, out of political and organisational considerations, that debt pooling would require a harmonised fiscal policy, and hence some sort of political union.

There could be partial forms of pooling, for instance for bonds related to particular kinds of investments but who controls how the money will be spent? On the other hand, numerous political leaders in the North have already expressed rather clearly the view that they wish to keep the ultimate separation of national budgets as a non-negotiable element of the Eurozone.

Many in Italy regard resistance against debt pooling as a want of European solidarity , and a failure to live up to the political and ethical commitment from other EU members. However, should EU solidarity be unconditional? While it is certainly good to show solidarity at a time of acute distress as is happening now , infinite and unconditional solidarity is ethically wrong. Once the emergency is over, it is not unfair to ask every country to return to a path of economic and financial sustainability.

Is financial sustainability not the norm of every state budget, or even every household? The possible existence of areas of the Eurozone permanently depending on transfers from other regions would be unfair and it would certainly generate, as is already happening, fierce political resistance.

Solidarity should always be conditional in the long run. Italy is right in demanding solidarity it will get it for as long as the pandemic continues , but there are many in Italy who are wrong in refusing to discuss and negotiate conditions, insisting on an incorrect solidarity concept. Moreover, it is questionable whether such structural reforms would actually deliver meaningful, long-lasting results, and allow a country like Italy to return to a path of economic growth and financial sustainability.

Spain and Portugal have certainly managed to recover from the crash while implementing reforms which came as conditions to access EU support, but they did so by massively expanding their national debt and running high deficits for most of the past decade Spain from Moreover, structural reforms are not addressing one of the most important economic issues in Italy, namely the now practically inevitable demographic collapse, which, according to a study by the Bank of Italy, will be a formidable headwind for the country from now onwards, leading to a scenario of permanent recession.

It has failed because it was grounded on the illusion that law in the form of international treaties initially envisaged in the late s, and thus in a completely different economic, social, and demographic landscape can predict and regulate any occurrence in political and economic life, indefinitely. Even if Draghi does not achieve everything he is aiming for, just completing some of the plan will make a significant difference.

Should a resumption of hostilities break the coalition apart, then new elections could be called before the scheduled poll in and Draghi, who will not run for election, will be ejected from office prematurely.

At the least, many are hoping that even if Draghi does not achieve everything he is aiming for, just completing some of the plan will make a significant difference.

But even enacting small, lasting changes in a country that has resisted reform for decades represents a daunting task. Manage cookies. If you think the same, join us. Special Report Investing in Italy.

Currently reading:. Hopes high for return of foreign investors to Italy. Foreigners rush to buy Italian football clubs. Italian economy. What will be the consequences for Italy, and for Europe, if the prime minister fails to deliver? The question of how to open up a credible perspective of positive economic development for the coming years, especially for Italy, but also for Spain and other countries particularly hard hit by the crisis, is central to the future of the Eurozone.

Italy's currently precarious situation can be better understood in a broader context: For years, the Italian economy has been in a kind of smouldering permanent crisis, which is dramatically aggravated by the negative economic effects of the Corona crisis. Germany, on the other hand, where per capita incomes were already slightly higher than in Italy when it joined the euro, continued to chip away over the same period, resulting in an increasing GDP per capita gap.

Data: Eurostat; own calculations. Thus Italy had already lost two decades in its economic development before the corona crisis. The political promise that came with the introduction of the euro as the peak of the process of economic integration in Europe remains unfulfilled : when the euro area was created, policymakers had promised that, thanks to economic integration into the European currency area, the southern euro countries would, in the long term, move closer to the higher level of prosperity of richer countries such as Germany and Austria.

However, the experience with the common European currency area before the Corona crisis clearly contradicts this political promise. The high level of Italian public debt is due to legacy debt from the s and s. Since the mids, however, the various Italian governments have made considerable efforts to reduce the debt burden , even if this is usually ignored in the media: Since , the Italian government has achieved a substantial primary surplus almost continuously; in other words: excluding interest payments, government revenue has exceeded government expenditures.

Since , the Italian state has posted a primary surplus in 24 out of 25 years; the crisis year was the only exception so far. Due to the fiscal consolidation measures implemented since the financial and economic crisis, Italy achieved primary surpluses even in the years before the corona crisis despite weak growth and declining tax revenues. Since the introduction of the euro, Germany, Austria and the Netherlands have had significantly lower and less sustained primary surpluses than Italy.

Nevertheless, in these three countries one narrative still dominates public discourse, namely that the Italians are to blame themselves if they can do less to support their economy in the current situation than the northern euro countries. Dutch finance minister Hoekstra had caused indignation in the southern euro countries when he suggested that the EU Commission should investigate why Italy and other southern countries did not have sufficient fiscal space to combat an economic downturn.

Apart from the fact that Hoekstra and others have made a mockery of a European spirit of solidarity, thereby disappointing the crisis-stricken population in Italy and other countries, this attitude is untenable in terms of content - especially when it comes to Italy: no other country has so consistently run up primary surpluses since the introduction of the euro. Of course, in addition to the high public debt ratio, the Italian economy also has considerable structural problems: the ailing banking sector, which is far too large, holds many bad loans and has cost taxpayers many billions in recent years as a result of repeated state bailouts ; weak productivity growth over recent decades; dysfunctional elements of the political system; the economic polarisation between northern and southern Italy; problematic developments in the Italian industrial sector, etc.

However, Italy's persistent aggregate demand and productivity misery is also a consequence of the shortcomings of the institutions and rules in the Euro area.

While Italy has not been able to pursue a tailor-made monetary and exchange rate policy to support economic development since joining the euro, the restrictive European fiscal rules and austerity requirements of the EU Commission and the ECB have also systematically tied the hands of national fiscal policy in the years before the Corona crisis — based on controversial technocratic assessments.