The lethal mix of economic contraction and zero inflation is causing Italy's debt trajectory to spiral upwards, despite austerity and a primary surplus of 2pc of GDP... The recession is eroding tax revenues so badly that premier Matteo Renzi will have to come up with fresh cuts of €20bn to €25bn to meet EU deficit targets, perpetuating the vicious cycle.


It is an incontrovertible fact that Italy's 14-year disaster coincides with EMU membership. This does not prove causality. It suggests that EMU set off a very destructive dynamic for Italy's particular circumstances, and is strong evidence that EMU now prevents the country from breaking out of the trap... a damning report [shows] how Italy's productivity growth and competitiveness faltered each time it pegged its currency to Germany over the past 40 years. It roared back with each devaluation.

... The country does not suffer from excess debt in any fundamental sense. Mortgage debt is very low. Aggregate debt is around 270pc of GDP, much lower than France, Britain, Spain, Japan, the US, Sweden or the Netherlands. The root problem is an exchange rate misalignment that creates an unnecessary public debt crisis through the perverse mechanisms of EMU.

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