THE EU has been warned Italy could soon create further political instability within the bloc due to the potential departure of Prime Minister Giuseppe Conte and his successor's stance on handling the economic fallout of the coronavirus pandemic.
As a reflection of their culture, Italy's ''competitive edge'' strategy was frequent devaluation.
As a reflection of their culture, Germany's was an obsession with low inflation.
This is the flaw of the EU project.
You cannot bring 2 cultures together under one policy (in this case, low inflation) and expect the same result.
Everyone wanted German low interest rates, but they lacked the cultural norms to attain it.
You don't just get low interest rates. It is achieved through decades of fiscal and monetary discipline.
However, the Euro allowed this to happen. It allowed countries that did not deserve low interest rates (because of lax fiscal & monetary policy) to adopt them.
There is no conceivable reason why the governments of Germany and Italy should be paying similar interest rates.
Their risk profiles are completely different.
Investors seemed to take the stance that since both were now borrowing in the same currency, their interest rates should be the same.
This is nuts. And the mistake is finally beginning to dawn on them.
Italy needs to leave the Euro.
Set up a new Lira at a starting point of 1-for-1 to the Euro.
Denominate all their debt into Lira.
Let the Lira devalue to reflect Italy's economic circumstance.
Then they will be able to export normally.
Italy will then go back to higher interest rates and frequent devaluations, as is the normal result of their culture.
The stresses we see in Italy, Greece & Spain etc. are a perfect macrocosm of the stresses seen in multicultural societies.
They are purposely ignoring blatant and extreme differences.
You cannot mix widely different cultures under one law and expect similar outcomes.
Both on a micro and macro stage, Europe has set itself up for monumental turmoil.