Italy is too big to save through international financing methods, and the best option for the country would be to give in immediately and restructure its massive public debt.That’s the latest from economist Nouriel Roubini, who gives his frank opinion on Italy in an FT editorial this morning.
With public debt hovering around 120% of GDP, Italy is too big to save using mechanisms like the European Financial Stability Facility, the International Monetary Fund, and maybe even the European Central Bank. Although Italy is eager to sell off its public debt to one of these mechanisms, none of them would have any money to backstop Spain or Belgium after an Italian bailout.
If, as appears likely, Italy remains stuck in an uncompetitive recession and is unable to regain market access in the next twelve months, then even if such large official resources were mobilised, they would be wasted on financing investors’ exit and thus postponing an inevitable debt restructuring that would then be more disorderly.
So then the only options are a major tax on the wealthy or debt restructuring. Roubini says the latter option is clearly preferable to the former, which would severely depress the Italian economy and only allow time for an investor exit:
So debt restructuring is preferable to a Plan A that will fail and then cause a bigger, disorderly restructuring or default down the line. Even a debt restructuring would not resolve the problems of lack of growth and outright recession, lack of competitiveness and a large current account deficit. Resolving those requires a real depreciation that may well demand the eventual exit of Italy and other member states from the euro.
But exit can be postponed for a while. Restructuring, however, has to be implemented now. The alternative is much worse.
Check out his full editorial in the FT >
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