If they kick the PIIGS out of the EU, the PIIGS default on the bonds which are in French and German banks, and those banks go down, possibly dragging down the French and German economy.
This is the sensible way to go.
If the PIIGS stay in, then they will have to print Euro’s to cover all of PIIGS debt payments.
I’m betting on the latter.
I’m betting on the latter as well.
Despite the occasional tough noises from Merkel and Sarkozy, at the end of the day, they’ll maintain the status quo. Even though it’s disastrous.
Several things that many people seems to ignore about Italy:
1) A founding member of the european community.
2) A net EU net payer (unlike the other “PIIGS”). They pay net 5 billion euros to Brussels every year. In a period of 6 years, each italian pays net 780 euros to Brussels (each frenchman pays net 800 euros; each german pays 1200).
3) The second european exporter of manufactured goods (excluding energy and raw materials), ahead of France and UK and only behind Germany. The province of Turin exports more than Greece.
4) Unemployment rate of 5% in the centre and northern regions.
5) Their international investment net debtor position is around 25% of GDP. Much better than the 90-100% in Greece. Portugal, Spain and Ireland.
6) Private debt is sustainable. The public debt is an old issue: it´s above 100% of GDP since the 1980s. A consequence of many years of consecutive budget deficits around 10%, from 1981 to 1993 (sounds familiar??)
7) There are no objective arguments to explain this brutal speculative attack against Italy. Other than the weakness of the government and distrust on Silvio Berlusconi. Once president Napolitano appoints a technical government led by Mario Monti (endorsed by Brussels and Germany) the italian risk will decrease drastically. It´s a matter of 10 days.