Nouriel Roubini, who lived for 20 years in Italy, has the day’s best post on the evolving Italian crisis. The concluding paragraph is a reasonable summary of what is required by Italy’s Euro partners to keep it in the currency bloc at this point:
‘Only if the ECB became an unlimited lender of last resort and cut policy rates to zero, combined with a fall in the value of the euro to parity with the dollar, plus a fiscal stimulus in Germany and the eurozone core while the periphery implements austerity, could we perhaps stop the upcoming disaster.’
What Roubini does not spell out is why this is unlikely to happen. When all the talking is done, it is a simple matter of trust.
Northern Europe does not trust Italy to push through the reforms that would make the effort and expense worthwhile.
The Matilda problem that I highlighted back in August is coming home to roost.
My own thought for the day is Article 54 of the Italian Constitution:
Those citizens to whom public functions are entrusted have the duty to fulfil such functions with discipline and honour.
It seems the last Euro-era chance to interpret that line in a more mundane and literal fashion may fall to Mario Monti.