Italy: Flight of the Lira

Smuggling currency abroad has long been a national pastime for Italians. For nearly a decade they have been carting lire by the billions across the border, partly to evade domestic taxes and partly in response to better investment opportunities in other countries. Though aware of the illicit traffic, Italian governments have tolerated it as comparatively harmless in a thriving economy.

In recent months, the practice has not only risen to alarming proportions but has emerged as the symptom of a deep-seated economic malaise. Last year the illegal flight of lire rose to $2.25 billion, enough to wipe out the benefits of...

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