Joseph E. Stiglitz asks if the euro can be “saved,” because Italy has installed a coalition government of two populist parties that would ultimately exacerbate its budget deficit. The anti-immigrant League from northern Italy proposed a flat tax, that would benefit the rich, and the populist Five-Star Movement (M5S) with its base in the South, advocates a universal basic income (UBI) – an agenda Italy can ill afford, given its debt woes (132% to GDP). Despite earlier pledge to ditch the euro, the two parties have dropped the idea of leaving the eurozone.

The author says: “Across the eurozone, political leaders are entering a state of paralysis: citizens want to remain in the EU, but they also want an end to austerity and the return of prosperity. So long as Germany tells them they can’t have both, there can be only one outcome: more pain, more suffering, more unemployment, and even slower growth.”

Only the periphery of the eurozone – also known as the PIIGS, an acronym for five of the most economically weak eurozone countries during the 2008 financial crisis: Portugal, Italy, Ireland, Greece and Spain - that is struggling. Meanwhile Ireland and Spain had recovered from their long economic nightmare. Germany is the richest country in Europe and has profited greatly from the euro. But German taxpayers are reluctant to bail out other struggling countries in the eurozone. They resent Germany and reject its austerity measures.

The author can not blame the euro for Italy “performing poorly since the euro’s launch.” The country has a productivity problem - between 1995 and 2016 it grew 0.3 percent a year, compared with 2 percent for Germany. The economy is still smaller than it was in 2008 - with unemployment at 11.6%. Labour market participation is low, and its birthrate in 2014 was the lowest since the foundation of the modern Italian state in 1861.

Sclerotic labor markets, corruption, nepotism and abundance of red tape do not seem to be the central problem. Critics say the major obstacle to growth is Italy's manufacturing sector, which has traditionally been dominated by small businesses, many of which in family hands. They have been reluctant to invest in human resources and slow to innovate, like taking advantage of new labour-saving technologies, such as computers in the 1990s to boost productivity.

The goods and services they produce are more expensive than those of their rivals. Specialising in low-cost manufactured products they face fierce competition from China which dominated the segment of the global economy since it joined the World Trade Organisation in 2001. The lack of competitiveness means that Italy had suffered the biggest drop in export market share of any developed country. Morever it has tended to have higher costs and higher inflation than rival countries since World War II.

Up until Italy joined the euro, it had been able able to restore competitiveness by devaluing the lire, which made exports cheaper. This option is no longer on the table. Instead the country is forced to try and drive down prices and wages domestically to increase productivity, in a process known as internal devaluation. Matteo Renzi had tried a different approach: structural reforms of Italy’s labour market. But it had proved unpopular, leading to his resignation after a defeat in a referendum on constitutional changes that aimed to make Italy more stable and to adopt tough-but-needed economic and labour policies.

The Eurozone is often compared to the gold standard before World War II - a commitment by participating countries to fix the prices of their domestic currencies in relation to a specified amount of gold. In effect, the countries in the Eurozone no longer have an independent monetary policy, interest rates cannot be set in the pure national interest and exchange rates between countries are so fixed that they have actually ceased to exist. In the 1920s and 30s that proved to be a recipe for disaster, one which had been replayed decades later in the periphery of the Eurozone – the PIIGS.

Joining the single currency was made easy in the 1990s. As one of the original signatories of the treaty of Rome, Italy desperately wanted to be in the first wave in 1999. But there was no real monitoring whether a country like Italy – with its inflationary tendencies – could actually cope with the rigours of euro-membership. Greece was only admitted in 2001 after cheating its way in. When it became clear that Italy would not meet the criteria, the rules were bent to make sure it did. The price it paid are two lost economic decades in which living standards have stagnated, which is why Italy has given up on mainstream politics.

The author says Germany and other countries in northern Europe “can save the euro by showing more humanity and more flexibility.” But, he fears it will not happen and is “not counting on them to change the plot.” This north/south divide is nothing new, even within Italy itself. It remains to be seen how long the coalition between the League and the M5S will last.