Sir Martin Jacomb on Greece in the FT

The euro gave the peripheral countries a standard of living above their earning power and, at the same time, took away their ability to correct this by devaluation. It is the same process which led to the permanent impoverishment of southern Italy, when the lira became the national currency after Italy was united under the Risorgimento 150 years ago. At the turn of the 19th century Naples was the largest city in Italy and the region was relatively sophisticated. But its economy declined relative to the north. Although it had started to build railways in the 1830s, before any other part of Italy, the effort was soon discontinued. Moreover, railways were unable to reach the length of the country because Pope Gregory XVI forbade their construction in the Papal States. He called them “chemins d’enfer”. The economies of north and south thus became progressively divergent. Southern Italy’s economic decline continued but, with the introduction of the lira, it lost its ability to correct its uncompetitive position. Able and enterprising people moved to the north or emigrated, and the situation became permanent, as it remains today. This tragedy endures.