The frying pan burns less than the fire: why Italy should not go out of the euro

Leaving the euro or staying in the area is not an alternative that offers symmetrical advantages and disadvantages to Italy and to other “peripheral” Member States, as it would happen if these countries had to decide to enter or not in a new currency area from outside. First, the opting out which was used by the United Kingdom and Denmark in 1998 at the creation of the single currency, cannot be used by the peripheral countries of the European Economic and Monetary Union (EMU), except by an unlikely revision of the European Treaties. Second, the exit from the euro area requires to manage stocks accumulated in that currency; this problem, often labeled as the legacy problem, would not have risen with an initial opting out. In the following Policy brief, my initial assumption may appear too academic since it refers to the ultimate abandonment of the EMU and, consequently, of the European Union (EU) by the side of a peripheral Member State. In fact, the analysis of the effects of an irreversible abandonment are interesting because they foreshadow the outcome, where more realistic scenarios lead to. In particular, they apply to the case of a temporary exit of a peripheral country that aims at implementing an adjustment period. My analysis is specifically dedicated to Italy; and my conclusion is that, if this country decided to temporarily withdraw from the single currency 'frying pan', it would be condemned to the flames of the sixth circle of Dante's hell. This is not to argue that the current configuration of the EMU reflects the best of all possible worlds. However the severe criticisms that can and must be addressed to the European choices, cannot call into question the permanence of Italy (and that of other peripheral countries) in the euro zone.