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The Euro's Future Is Up to Italy -- but Can Italy Meet the Challenge?

NEW YORK (TheStreet) -- Italy and its Prime Minister Matteo Renzi are in the spotlight. Last week we found out that in the second quarter of 2014, Italy experienced a second straight quarter of negative economic growth. This means that the southern European country is experiencing its third recession since 2008.

Then on Thursday, after the meeting of the European Central Bank, president of the ECB Mario Draghi suggested that Italy needed to focus more on reforming its political and economic structure than in arguing that the ECB needed to take on an even more expansive monetary policy.

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Renzi responded in an interview with the Financial Times. He agreed with  Draghi that Italy needs to make reforms, but that how the country changes is up to him and not to international bodies such as the eurozone powers, the International Monetary Fund -- or the ECB.

He also made the point, however, that he was moving in the right direction and that he would meet the rules of the eurozone for budget deficits, but that he would stick to his "chosen course."

The concern expressed last week by Draghi is an indication that there is some concern in Europe about Renzi's resolve or his ability to achieve these goals. One hopes that Renzi can accomplish his tasks. 

The battle going on in Europe is captured quite well, I believe, in a Wall Street Journal article by Simon Nixon.  Nixon argues that the battle in Europe is not about the survival of the euro, but whether or not the survival of the euro is based on terms defined by Germany or on terms defined by Italy or France or any of the other European countries on a less disciplined fiscal path than Germany.

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In the most recent period, Germany has been the dominant force in setting the tone for the eurozone. Germany's approach focuses on a strong currency based upon fiscal and monetary prudence and structural reforms that create competitive economies.

Italy and France and other parts of Europe have taken a much less disciplined approach to governmental policies and market structure. And these other counties have a history of devaluations, economic stagnation and fiscal desperation.

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