Seven years ago, at the height of the Greek Euro Crisis, Robert Mundell, “father” of the Mundell Fleming model and “father” of the Euro, proclaimed that the biggest threat to the euro is a potential bailout of Italy, which might just be too expensive. 

Italy is still (again?) teetering on the brink as it risks a $4billion penalty for violating the Euro’s fiscal discipline rules. Why? Use the MF model to explain Italy’s interest in racking up debt.