If Europe does not organize a financial bailout for Italy of about one trillion dollars, Rome could be forced to leave the euro by dragging the weaker countries of the Union with it and causing a fatal shock to the world economy.
It is the darkest hue picture designed by an analysis published in the prestigious Washington Post and signed by Robert J. Samuelson.
The title is emblematic: “Why Italy’s debt affects everyone” (Why Italy’s debt matters for everybody). The premise is based on the latest sovereign debt crisis that swept Europe between 2010 and 2012, which found a solution when Greece was allowed to restructure its debt in exchange for reforms and Mario Draghi announced the defense of the currency unique at any cost (“do whatever it takes”).
“The pact seemed to work – writes Samuelson – but it was fragile. It depended on constant economic growth that disappeared with the arrival of the pandemic. ” In fact, the virus forced all countries to increase both the annual deficit and the entire public debt. According to estimates by Capital Economics, an important consultancy firm will reach 73% of GDP in Germany, 120 in France, 180 in Italy and 222 in Greece at the end of the year.
Is this debt sustainable? “Impossible to answer – explains Samuelson – because there is no single definition of sustainability. For many economists, debt is sustainable as long as the market continues to buy it voluntarily. ” The factors that affect are many, from interest rates to the value of inflation, but above all the general state of the economy matters. And if nobody doubts the solidity of Germany, for the Washington Post “Italy and Greece are close to the edge of the ravine”.
It is at this point that Samuelson comes to the conclusions: “If a financial bailout is not organized, Italy could be forced to leave the euro”. But bailing out the Union’s third largest economy after Germany and France could also cost trillions of dollars and as the recent ruling by the German Constitutional Court could prevent Berlin from participating in such operations, other countries too they could back off.
At that point the global shock would be enormous. Because our entire lifestyle – which, despite the usual complaints, is still full of unpredictable comforts – is based on the principle of economic stability. If this principle fails, an even worse picture of the world recession of the 1930s would risk. And it is for this reason that the whole world today looks at Rome’s debt. With growing concern.