The euro removed devaluation escape valves, trapping Italy with rising debt and stagnant growth
Evidence
What united these two very different versions of Italy was a political system that transferred resources from the North to pay for the South while not fully taxing its citizens to make up the shortfall because of the persistence of traditional class alignments in the South. As a consequence, persistent deficits, which turned into debts that were reduced by persistent devaluations of the exchange rate, made it possible. Adopting the euro ruled out such devaluations, but the collapse in interest rates that it engendered sustained the unsustainable a bit longer. In 2000, Italian net debt to GDP was 93 percent. In 2007, it was 87 percent. Today, it is 100 percent, as the crisis and austerity policies lower the Italian economy’s already sclerotic growth rate of about 1.5 percent a year (for the past twenty-five years) while the debt owed gets bigger still and rates have shot up. — Mark Blyth, Austerity, 196
Categorization
- XREF: Connects directly to Mattei’s austerity critique and the broader structural-rather-than-spending diagnosis of the PIIGS crisis. — connects to: The euro institutionalized a gold standard, removing devaluation as a national adjustment tool. — Mark Blyth, Austerity: The History of a Dangerous…, 216; Devaluation and revaluation simply shift the fixed CFA-euro parity — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 122
- ADDENDUM: Relevant to how structural constraints rather than spending produce debt crises, a natural extension of the ‘On Sacrifice’ theme of structural over individual explanation.
Broader Connections
- The euro institutionalized a gold standard, removing devaluation as a national adjustment tool.
#corroborates(0.88) — Mark Blyth, Austerity, 216 - Devaluation and revaluation simply shift the fixed CFA-euro parity
#exemplifies(0.72) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 122