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