The only way out of Italy’s mess is by destroying the euro

Italy is the first of the eurozone's big nations to hit real trouble. While the Italian economy flourished under the weaker lira, the euro is much too strong and has stifled the country's competitiveness. Now the only way out of the crisis is for Italy to ditch the single currency, says Matthew Lynn.

It was always a matter of time. When the euro crisis erupted more than a year ago, the markets started fingering Italy as the weakest of the big nations in the single currency. True, France has its problems, and the Spanish are suffering the after-effects of a massive property bubble. But surely Italy with its long history of chronic financial instability would be where the whole system blew up? For a year, it managed to fly under the radar. This week, the crisis arrived. And it may well prove fatal for the single currency.

In the last week, as the government of president Silvio Berlusconi wobbled, bond yields started to soar. On Monday, they briefly went past 6%, getting close to the crucial 7% level at which the markets judge that a eurozone country is effectively insolvent. There is no turning back now. A rescue of the Italian economy by its neighbours looks a certainty at some point.

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Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.