Is Italy going to leave the euro zone?

As was the case with France in 2016 before the presidential election in the spring of 2017, the financial markets are now concerned about the risk that Italy may leave the euro. An exit from the euro would enable Italy to conduct a very expansionary fiscal policy to finance the commitments made by the new government coalition, either by failing to meet the European budgetary rules (but these are EU rules , no t euro - zone rules ) or by monetising its public debt directly . But, as was the case for France in 2016, we should keep in mind why Italy in reality will not leave the euro: The redenomination of government and private-sector debt in to the new currency would lead to a default for all borrowers with external debt; In contemporary economies, the dominant effect of exchange rate depreciation is a reduction in activity because of the rise in import prices; An exit from the euro would lead to a considerable rise in interest rates, which would be drastic given the debt ratio, even if the central bank monetised the public debt.