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Europe sleepwalks into dangerous territory

Next year, when the sun-loving Germans travel to the Italian Riviera they'll still have to change their Deutschmarks into lire - or will they? Although the lira will be the only legal tender in Italy for a further three years some economists predict that Italian shopkeepers will soon prefer to be paid in Deutschmarks and bank those, even though the lira and the Deutschmark will be components of the same mighty euro.

Why? Because of the slim chance that Italy will default and/or European economic and monetary union (Emu) will fail in its first three years. If it does, so the thinking goes - you would be better off in Deutschmarks than in lire.

What effect would a pro-Deutschmark bias have, apart from forcing national mints to print more Deutschmarks and fewer lire? None, say some. Others fear it will open up first an interest-rate and then an exchange-rate differential. Nobody quite knows, and a lot of people refuse to talk about it, because they don't want to appear anti-euro, or even euro-curious, at this delicate stage of Emu.

"Thinking the unthinkable" is the title of several recent writings on Emu that dare to explore the unknown.

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