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Archivio per il Tag »Bloomberg«

→  dicembre 22, 2012

By Francesco Giavazzi and Franco Debenedetti

A highly indebted country such as Italy depends on its reputation. Lose it and you fall into a “bad equilibrium,” in which high interest rates make the debt unsustainable and default becomes a self-fulfilling prophecy. This is what happened to Italy in the summer of 2011, when then Prime Minister Silvio Berlusconi and his ministers lost what remained of their reputations and the cost of Italian debt soared, putting at risk both the future of Italy’s economy and of the euro. The only way out was for Italy to appoint a prime minister who enjoyed a strong reputation in the eyes of the world and would therefore be able to repair Italy’s.

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