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As we all know, the countries of the eurozone belong to the second category, since they don’t issue the currency they use and they effectively borrow in a foreign currency (i.e. a currency they don’t control). This is at the root of many of Europe’s socioeconomic problems.

Now, the notion that in light of the EU’s recent policy decisions – temporary suspension of the EU’s fiscal rules and boosting of the ECB’s QE programme – the constraints arising from the EZ countries’ lack of monetary sovereignty have all but disappeared is deeply flawed.

Yes, EZ countries (such as Italy) are now in a position to boost their deficits and in the short term can count on ECB support (to keep interest rates down). But this is *clearly* a temporary measure, which simply kicks the can down the road.

Let’s take the case of Italy. As a result of increased borrowing to deal with the corona emergency, Italy’s debt-to-GDP ratio is likely to reach 150%. It is highly unlikely that Italy will be able to continue to refinance its growing debt on the markets once the crisis is over.

At that point, there are three possible scenarios: (1) ECB accepts to engage in permanent and *unconditional* monetisation of Italy’s debt; (2) as per EU rules, ECB accepts to do the above conditional on Italy entering an ESM austerity programme; (3) Italy leaves the euro.

Frankly, I think we can all agree that scenario n. 1 is *highly* unlikely, if not impossible. That leaves the other two scenarios. Which means that none of the EZ’s underlying structural problems have been resolved. Only sustainable solution is to return to national currencies.

On a final note, the idea that the crisis will lead to a European supranational “democratic” government and federal treasury with full spending capacity is not only deluded but disturbing in and of itself. A European democracy can’t exist because there’s no European demos.