With Sunday’s election of President Emmanuel Macron, voters confirmed that France remains a bedrock of the euro area, buttressing the region’s financial markets. But political risks to the euro have not disappeared. In coming months, concerns probably will turn to Italy, where the leader of one popular party has called for a referendum on leaving the euro area, and where parliamentary elections must be held before 20 May 2018.

From an economic perspective, Italy stands on a knife-edge. The economy is smaller and less productive than it was in 2001, while government debt has jumped by 30 percent. As long as interest rates remain low, and the government continues to run a primary budget surplus, the situation is only mildly unsustainable (with the debt/GDP ratio creeping higher). But even a small problem at home or abroad could drive funding costs higher and expose Italy’s precarious state.

Would independent Italian monetary policy, controlled by the Banca d’Italia in Rome, be sufficient to bring Italy back from the precipice and promote economic growth? We doubt it. In the long run, the most effective way to ensure debt sustainability is to implement growth-enhancing structural reforms. Nothing about Italy’s membership in the monetary union prevents this. The problem is a lack of political will...