Why Italy’s Days in the Eurozone May Be Numbered

Italy is the world’s eighth largest economy and the government is now obliged to borrow at interest rates of 7 percent for daily operations. Italians have approved austerity reforms, but the nation’s €1,900 billion in debt may require restructuring, sending shudders among banks and investors. Restructuring won’t trigger economic growth, and reviving Italy’s credibility could require at least a year, writes economist Nouriel Roubini. In the meantime, financial markets could bid the bonds to higher rates and reassess risk of other European spenders. The IMF lacks funds for massive rescue. About half of a European bailout fund, already stressed by collaterized debt obligations with their varying promises of risks and guarantees, is committed to relieving financial difficulties in Greece, Italy and Portugal. Would-be rescuers are in no mood to throw good money after bad. Without immediate help from Europe, Italy’s only option is to drop the euro and start over with a depreciated lira, effectively breaking up the currency union. Roubini notes, “Unfortunately this slow-motion train wreck is now increasingly likely.” – YaleGlobal