Everyone’s eyes have been on Greece as the first possibility for an exit from the euro. But a recent report from Bank of America Merrill Lynch posits that Italy and Ireland may actually be the first to exit. The bank’s cost benefit analysis and game theory show that Italy and Ireland have more incentive to leave the currency.
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The analysis in the report offers interesting and unexpected possibilities that may result from the European crisis, one of which is the fact that Germany is the country that could most easily exit, yet exiting would hold the least advantage for Germany.
Italy, on the other hand, has plenty of incentive to exit and could do so quite easily. Italy would likely experience better economic growth and would become more competitive by exiting. Those benefits are greater for Italy than for Greece according to game theory
The report also said that Germany could encourage Italy to stay in the currency but that its ability to provide such incentive may be limited.