Anorak News | If Italy goes into recession then the Euro’s over

If Italy goes into recession then the Euro’s over

by | 19th, January 2012

IF Italy goes into recession then the Euro’s over. That’s one way of looking at it at least: if Italy goes into a deep recession then the game’s up for the euro.

The reason being that the eurozone just doesn’t have enough money to keep Italy’s borrowing costs down. So everyone needs to know that Italy isn’t going to increase the debt they’ve already got. However, obviously, in a recession, this isn’t possible, debt is going to increase.

So, recession in Italy means that whatever people try and cobble together to keep Italian borrowing rates down won’t work: at which point Italy goes bust like Greece.

So, the big question is, is Italy going to go into recession?

The Banca said Italy’s economy contracted by 0.5pc in the last quarter of 2011. It will shrink by a further 1.5pc this year, with no growth in 2013.

This is a direct result of the misguided pro-cyclical austerity polices imposed by Angela Merkel and the ECB – the infamous Trichet letter – without offsetting monetary and exchange stimulus.

Yup. And we can see it from the fact that the money supply is shrinking. It’s possible to have a recession without the money supply shrinking: but it’s almost impossible for the money supply to chrink without having a recession.

The sad thing about all of this is that it was entirely avoidable: if only we hadn’t had the euro in the first place.

Posted: 19th, January 2012 | In: Money Comment | TrackBack | Permalink