Italy could opt out of Eurozone, says German Ifo think tank chief

Head of Germany's Ifo economic institute Clemens Fuest told German daily Tagesspiegel that Italy could eventually opt out of the euro currency area if Italians do not see any improvement in their standard of living.

"The standard of living in Italy is at the same level as in 2000. If that does not change, the Italians will at some stage say: 'We don't want this euro zone any more'," Ifo chief Clemens Fuest told the newspaper.

He also said that if Germany's parliament were to approve a European rescue programme for Italy, it would impose on German taxpayers risks "the size of which it does not know and cannot control." He said German lawmakers should not agree to do this.

Italian government is focusing on underwriting the stability of its banking sector, starting with a bailout of Monte dei Paschi di Siena. Italy's government at a cabinet meeting last month approved the creation of a €20 billion fund to help troubled banks. Italy's banking sector is saddled with 356 billion euros of bad loans, around a third of the euro zone's total.

European rules on bank rescues require that investors to share some burden of losses. However, under the terms attached to the Italian government’s new fund, the losses suffered by holders of Monte dei Paschi’s junior bonds appear to be fairly limited.

Germany's finance ministry expressed concern last week about Italian rescue plans, saying Rome must stick to European rules. He said a precautionary state recapitalisation of banks can only be part of a solution in exceptional cases and under strict conditions and that owners and creditors must be among the first to suffer losses. The bank must be solvent, he added and state money must not be used to cover losses.