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European crisis no laughing matter : Comments
By Julie Bishop, published 7/3/2013At a recent political rally of the German Social Democratic Party, a candidate for Chancellor, Peer Steinbrueck pointed to the political situation in Italy as a challenge for all of Europe.
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Italy has a massive foreign debt (as do Greece, Spain, Portugal etc) denominated in Euros. If it was still on the Lira Italy could do things to bail its economy out of its present predicament (such as devalue or limit imports) that it cannot do while using the Euro.
It it could even default on its foreign debt, a solution which puts the problem back on the countries and banks which foolishly made the loans that form the foreign debt. Those countries and their banks may even have made the loans to avoid their own internal economic problems which is how China has accumulated massive quantities of USA Loan certificates.
Italy is like a "broke" state in Australia or the USA.
Julie (and Julia) needs to read up on Modern Money Theory. The primer with that title by Professor L Randall Wray of the University of Missouri, Kansas City, might be a suitable starting point.
The Kansas City Economics Department, chaired by Dr Stephanie Kelton, presents some excellent blogs at New Economic Perspectives on just such matters, as does Professor Bill Mitchell at billy blogs.
These intellectually competent people forecast that the present European crisis would occur if the Euro was adopted without the essential strong "Federal" European central government which would have meant that individual countries would have had to give up their principal roles and become dependent states.
The most impoverished USA state recovers form the USA government over two dollars for every dollar that state contributes in Federal taxes. The more prosperous US states recover 60 cents per dollar. The impoverished states are usually the ones complining about the size of the USA government.