Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
The interesting question your post brings up is "Why?"

You are absolutely correct that Italy is competing not with BoA but instead with the US because of the explicit guarantee of the US FDIC for new BoA debt, but the more important question is why should Italy not be competitive with the US, given America's evidently problematic economic fundamentals?

I think the the reason that will eventually come to light is that US political authorities are simply more credible in their coercive capacity (read: power) to redistribute social resources to make good on promises to pay than anyone else in the world, now or for the forseeable future. During manifestations of aggregate risk like the present, power is simply more important than the ruses of balance sheets.

Capital controls are one possible policy response to that (and, contrary to most posts on this topic, capital controls, at least as far as economists are concerned, certainly ARE protectionist, as are immigration controls on movements of labor), but if I'm right about the role of power in mitigating risk, placing capital controls will simply make exporting goods to America less profitable and reduce both trade and economic growth -- worsen the recession.  That's probably not something Italy or other European economies are interested in right now.

by santiago on Wed Jan 14th, 2009 at 01:13:43 PM EST
Thanks and welcome to European Tribune, santiago!

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Wed Jan 14th, 2009 at 04:14:16 PM EST
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