Once Italy is in, with an appreciated currency, the country will soon be back on the ropes, just as in 1992, when the currency came under attack. - Rudi Dornbusch

The model retains the uncomfortable property that any increase in demand for home output ... leads to nominal and real appreciation... The uncomfortable fact remains that even in this model there is a short-run tendency for an expenditure increase to induce an appreciation... Expansionary fiscal policy will lead to an initial depreciation of the nominal and real exchange rate if ... (it) is accommodated by an expansion in nominal money.

The most likely scenario is that EMU (Economic and Monetary Union of the European Union) will occur but will neither end Europe’s currency troubles nor solve its prosperity problems.

Italians dream that the ECB (European Central Bank) will make their life easier than the Bundesbank does now... The new central bank is certain to establish itself at the outset as a direct continuation of the German central bank.