The aim of this paper is to propose an interpretation of the crisis of the Eurozone, according to which the wider and wider gaps at regional level (also) depend on the stronger wage moderation and higher deflation in “peripheral” countries. The argument put forward is based on the debt-deflation theory developed by Irving Fisher in 1933. This argument is leveraged to explain the diverging trends of public debt as against GDP, making specific reference to the comparison between Italy and Germany. In particular, it is outlined that: (i) wage moderation, along with other factors, triggers deflation; (ii) deflation involves higher real interest rates on State bonds; and (iii) deflation curbs consumption and investment. As a consequence, in “peripheral” countries (Italy, in particular), wage moderation reduces internal demand, and brings about a higher level of public debt/GDP, without a significant long-term impact on the growth of net exports.
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