Oh mamma, can this really be the end? (Nth reprise)

Only in Italy do markets bounce, the currency strengthen, and gold weaken when the leader of political ‘right’ says he will step down (in order, as the traditional Italian formulation has it, to spend more time with his bunga-bunga girls).

Of course Sil hasn’t said when he will go.

As if to remind us that whatever the Greeks can do badly, the Italians can do at least as badly, this limp political comedy will continue.

Meanwhile, the IMF has been invited to Rome, which will give staffers a pre-change-of-government chance to reflect on what actually needs doing to keep Italy in the Euro. Most economists quoted in the press focus on the need to deflate. But this is impractical — Italians couldn’t take the deflation any more than Greeks could. No society can watch its real incomes shrink by a quarter or a third in order to make economists’ graphs look the way they ought to.

The only real way forward for Italy is very serious structural reforms which unlock fairly quick productivity gains and hence growth.

There is no theoretical reason why this cannot happen.

However, the job that will confront the IMF if it is called in to run a programme — which I continue to believe it will be — would exceed anything it has undertaken before.

Not only the labour market and outsize public sector need to be overhauled, but the entire justice system has to be reworked.

Can a foreign agency do such things outside the settlement terms of a catastrophic war? I suspect not. Which leaves two choices. Either give Italy German money and accept the country will not change and will remain a fiscal burden on the centre. Or kick Italy out of the Euro and refocus the group on a more northerly European caucus of states that can actually deliver political, social and fiscal integration.

In the end, it is all politics.

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