>So although there will be an issue of whether the Italian government will
>weaken the euro, and whether the other states will let it, what is the
>point of having a major world currency if the other countries of the world
>cannot have the pleasure of subsidising your economy by lending you money
>free.
Though Italy will issue debt in euro (or is it euros? someone clarify!) it can still be scrutinized as a credit and have to pay a premium over Germany, which could serve as a benchmark. Just like Brazil or Mexico, or even GE and K-Tel, are quoted as a premium to U.S. Treasuries. But since that premium will be very explicit after 1/1/99, instead of being partly hidden by currency difference, the pressure to shave it will be tough. Of course, for investors it might be free money for Italy to pay 50 basis points over Germany, since there is, what, a .01% chance Italy will default, and it will no longer have a currency to debase.
Doug