Does it pay to have the euro? Italy’s politics and financial markets under the lira and the euro

There is a broad consensus that the quality of the political system and its institutionsare fundamental for a country’s prosperity. The paper focuses on political events inItaly over the past 35 years and asks whether the adoption of the euro in 1999 hashelped insulate Italy’s financial markets from the adverse consequences of itstraditionally unstable political system. We find that important political events haveexerted a statistically and economically significant effect on Italy’s financial marketsthroughout the 1970s, 1980s and 1990s. The introduction of the euro appears to haveindeed played a major role in insulatin...