I am of the "Italy restarts the lira and imposes heavy taxes on income from euro-denominated debts owed by Italian citizens" school. But the question of how to exit the eurozone is under analyzed. Best solution, of course, is for Germany to reflate; Joseph Stiglitz: How to exit the eurozone: "The challenge... will be to find a way to leave the eurozone that minimizes the economic and political costs...
...A massive debt restructuring, carefully done, with special attention to the consequences for domestic financial institutions, will be essential. Without such a restructuring, the burden of euro denominated debt would soar, offsetting possibly a large part of the potential gains. Such restructurings are a normal part of large devaluations. Sometimes it’s done quietly and obscurely—as when the U.S. went off the gold standard. Sometimes it’s done more openly, as in Iceland and Argentina, with debtors crying foul. But such debt restructurings should be viewed as an inherent risk of cross-border investing, one of the reasons that “foreign” bonds often yield a risk premium. From an economic perspective, the easiest thing to do would be for Italian entities (governments, corporations and individuals) to simply redenominate debts from euros into new lira. But because of legal complexities within the EU, and because of Italy’s international obligations, it may be preferable to enact a super-Chapter 11 bankruptcy law, providing expeditious recourse to debt restructuring to any entity for whom the new currency presents severe economic problems. Bankruptcy laws remain an area within the purview of each of the nation states of the EU. Italy could even choose not to announce that it’s leaving the euro. It could simply issue script (say government bonds) that would have to be accepted as payment for any euro debt obligation....
Greece gave into being strangled by the European Central Bank. But it didn’t have to. Athens was already well into creating the infrastructure (an electronics payment mechanism under the new drachma) that would have eased a transition out of the eurozone. Advances in technology over the past three years make creating electronic currency systems all the easier and more effective. Should Italy choose to use one, it wouldn’t even have to face the difficulties of printing new currency....
The cost of persistent unemployment, especially among its youth, is enormous. Young people in their 20s and early 30s should be honing their skills in on-the-job training. Instead, they are sitting home idle, many of them developing a resentment toward the elites and the institutions they blame for their predicament. The resulting lack of formation of human capital will also dampen productivity for years to come. In an ideal world, Italy wouldn’t have to leave the eurozone. Europe could instead reform the currency union and provide better protection for those adversely affected by trade and migration. But in the absence of a change of direction by the EU as a whole, Italy needs to remember that it has an alternative to economic stagnation and that there are ways of leaving the eurozone in which the benefits would likely exceed the costs...
#shouldread
