“Italy needs lots of deflation …”

Been quite a while since I mentioned the Global Macro Monitor blog. Its a must read, for so many reasons. Here they are commenting on Italy, nailing the problem so many of these Euro countries have:

Italy needs lots of deflation relative to other countries to become competitive and doesn’t have the ability to adjust relative prices through the exchange rate without an independent currency.


Of course, an internal devaluation is so much more difficult than a depreciation of the exchange rate.

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