Avoiding an Italian bailout: Why and how
Francesco Giavazzi 13 August 2012
Spain looks set to turn to the EFSF for a formal bailout subject to stringent conditionality. In this column, Francesco Giavazzi – one of Europe’s leading macroeconomists and an advisor to the Monti government – argues that Italy’s situation is nothing like Spain’s. To avoid submitting itself to its EFSF conditionality, Italy should reduce its borrowing needs with a determined programme of public asset sales and bridge financing from the Cassa Depositi e Prestiti.
Spain has no options, but Italy does.
- Spain will have to accept EFSF conditionality in order to persuade the ECB to buy its bonds.
- Italy is different; Italy should not bow to the EFSF and submit itself to its conditionality in order to persuade the ECB to buy its bonds.
Spain may have no other option than to turn to the EFSF and the ECB for assistance: Italy has, and should pursue them. By going to the EFSF together with Spain – as many in the markets are advising – the two countries would be put in the same basket, one in which Italy does not belong.
Eurozone crisis, EFSF, Italian bailout, Spanish bailout
Italy’s 'this time it’s different' moment: With rejoinder by Giavazzi
Charles Wyplosz 15 August 2012
Some maintain that Italy and Spain risk losing market access for their sovereign bonds despite drops in yields. A recent Vox column by Francesco Giavazzi suggested that Italy could and should avoid a bailout. This column argues that in spite of all its admirable human and economic assets, Italy has moved to a bad equilibrium from which it is most unlikely to escape.
The recent article by Francesco Giavazzi is both depressing and déjà vu all over again.
- In early 2010, when the situation started to deteriorate in Greece and some eggheads opinionated that an IMF program was unavoidable – the Greeks replied "we are not Latin America";
- Half a year later, the Irish stated that they were not Greeks;
- Then the Portuguese insisted that they were not Ireland;
- Just a few months ago, the Spaniards claimed that they were not Portuguese.
Now guess what – the Italians remind us that Italy is not Spain.
Eurozone crisis, EZ crisis, Italian bailout