20180608-NATIXIS-Bear_in_mind_that_a_euro-zone_country_cannot_leave_the_euro_5页_615kb

Flash Economics Summary

Core Content

The document discusses the economic implications of a euro-zone country leaving the euro, with a particular focus on Italy. It outlines the challenges that would arise from such a move, especially regarding the impact on external debt and the broader economic competitiveness of the country.

Main Points

• Euro-Zone Exit Constraints: A euro-zone country cannot leave the euro due to the substantial gross external debts and assets that are denominated in euros. If a country were to devalue its currency, the value of its external debt in national currency would increase, leading to higher servicing costs or potential defaults.

• Historical Acceptance: The French far right eventually accepted the idea that France could not leave the euro zone. This suggests that political parties in other euro-zone countries, such as Italy, may also have to accept this reality, even if they advocate for leaving the euro.

• Italy's Competitiveness Issues: Italy's cost competitiveness has significantly deteriorated since joining the euro. This is evidenced by the decline in its export market share and the increase in unit labour costs in the manufacturing sector.

• Devaluation as a Past Solution: In the past, Italy might have devalued its currency to improve competitiveness. However, this is no longer a viable option due to the constraints of being part of the euro zone.

• Wage Freeze as a Solution: The only feasible way for Italy to improve its competitiveness is through a wage freeze, as seen in Spain during its economic crisis.

• Financial Markets' Response: If financial markets understand that Italy cannot leave the euro, they may become less pessimistic about its economic prospects.

Key Information

• Charts Overview: The document includes several charts (1A to 1E, 2A, 2B, 3, 4, 5, 6) that illustrate the gross external assets and debt of various euro-zone countries, the decline in Italy's export market share, and the increase in unit labour costs.

• Legal and Regulatory Disclaimers: The document is intended for professional and qualified investors only and is strictly confidential. It is subject to various regulatory frameworks in different jurisdictions, including France, the UK, Germany, Spain, Italy, and others.

• Natixis Supervision and Authorization: Natixis, a foreign bank and broker-dealer, is supervised by the European Central Bank (ECB) and authorized by various regulatory bodies in different countries, including the ACPR in France, the FCA and Prudential Regulation Authority in the UK, and the Bank of Italy and CONSOB in Italy.

Conclusion

The document concludes that it is impossible for a euro-zone country to leave the euro, even if its cost competitiveness is weak. Therefore, Italy will not leave the euro and will have to implement measures such as wage freezes to restore its competitiveness. If financial markets accept this, they may become less pessimistic about Italy's economic future.

Disclaimer Summary

• The document is for professional and qualified investors only.
• It is strictly confidential and not to be disclosed to third parties.
• It does not constitute a personalized investment recommendation.
• No liability is accepted for the accuracy or completeness of the information.
• The views expressed are those of the authors and may differ from those of Natixis or other entities.