Italy Would Have Benefited By Exiting the Euro Area

From our point of view, the outputs of the research by the BofA Merrill Lynch look plausible, however, they should not be taken as a guide for action. In fact, the more stable and developed the country, the sooner it may recover after exiting the troubled euro area. As compared to Greece, the economy of Italy is more diversified and the extent of fiscal and debt problems is smaller. Accordingly, Italy's hypothetic exit from the euro area would permit it to go faster and more smoothly than Greece through the period of adjustment to an "independent" life.

However, the same factors, from our point of view, make us believe that Italy has fewer reasons than Greece for exiting the euro area. Furthermore, if Italy exits the euro area that would mean that the latter has ceased to exist. Italy is the third largest economy in the euro area. With Italy's departure from the euro area, the latter will shrink to the currency union between Germany and France.

At the same time, Greece's exit is advantageous to the euro area because the European monetary authorities will be able to focus their attention on those economies which have higher potential to survive. Such a situation is to calm investors and, subsequently, interest rates on the Italian and Spanish debts will go down and economy of countries in the euro area periphery will be able to recover in more comfortable conditions.

Sergei Drobyshevsky, Doctor of Science (Economics), Director of the Center for Macroeconomics and Finance