JPMorgan's Stunning Conclusion: An Italian Exit May Be Rome's Best Option

With Europe having a near heart attack last week, as Italian bond yields exploded amid deja vu fears that the new populist government would press the "Quitaly" button and threaten the EU with exiting the Eurozone in order to get budget spending concessions from Brussels, the discussion about Europe's record Target2 imbalances quietly resurfaced after years of dormancy. And with €426BN, Italy has the highest Target2 deficit with the Eurosystem (Spain is a close second with €377BN) any discussion about an Italian euro exit raises concerns about costs.

After all, as JPMorgan reminds us, it was only a year ago, in January 2017,  that in a letter to European Parliament MPs, ECB President Draghi made the stunning admission that a country can leave the Eurozone but only if it settles its bill first,  or as Draghi said "if a country were to leave the Eurosystem, its national central bank’s claims on  or liabilities to the ECB would need to be settled in full."

 

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