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.
Charles Wyplosz, 15 August 2012
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.