Italy’s Italian Prime Minister Matteo Renzi has announced that he is going to resign, following a staggering defeat in a referendum over constitutional reform, leaving the euro zone’s third-largest economy with a huge question mark hanging over it.
It is thought that Renzi will resign as soon as parliament has approved the 2017 budget sometime later this week.
This means that there is now a new blow to western political establishments still affected by Brexit and the Trump triumph in the US.
Italy’s people voted on what was set to be one of the most significant changes to the current constitution since its birth in 1948.
Mandated by law, Matteo Renzi’s government was seeking to modify significant parts of the country’s constitution. The referendum was intended to change the rules and allow Italy to be more governable; and was highly opposed by right-wing and populist parties, including groups that want Italy to ditch the euro.
Renzi’s defeat will undermine the country’s fragile political position; and add to fears about pulling Italy out of the Euro. The euro initially fell after the result, along with European stock and bond markets, over concerns that early elections could follow, possibly paving the way for an anti-euro party such as the 5-Star Movement to win power.
The 5-Star Movement party has pledged to carry out a referendum on whether Italy should stay in the euro; and some investors are already predicting the end of the European Union in its totality, let alone the single currency: “We think the EU will break and that Italy will leave the euro,” Jim Smigiel, a U.S.-based money manager at SEI Investments Co was reported as saying, “until a while ago this was just unthinkable, implausible, but we’re starting to see the wheels in motion, at the very least…”
However, according to Europe analyst at the Italian Institute for International Political Studies, Antonio Villafranca, “…the idea that Italy is going to leave the euro… is exaggerated… even if early elections are called after the Renzi defeat, 5-Star’s chances of getting into power would depend on changes to the electoral system. Winning an election might not be enough because the party could have a hard time finding enough allies to form a parliamentary majority,” he said.
According JPMorgan Chase & Co. economists. “Any credible noise about a euro exit would induce capital flight and severe market turmoil, so that market pressure might force parties that campaigned for a euro exit to quickly revise their plans.”
The 5-Star Movement – or The Eurosceptic party – has been actively campaigning for a referendum on exiting the single Euro currency. 5-Star’s Luigi Di Maio, vice-president of the lower house, said that “…it would push for an advisory referendum on euro membership. Di Maio hasn’t been clear about what he would want to replace it, saying in an interview with Repubblica that he favours “a euro at two speeds or a national currency.”
CEO Terry Moutter comments…
“I think this will be the start of the collapse of the EU and the EURO if the government changes in Italy as the populist vote is starting to take real shape now.
If Italy and then France turn to right wing or far-right-wing governments, then the collapse of the EURO could be upon us inside two years.
The question must then be: What does Spain do then? A lot of Spanish people would like to return to their own currency – away from the German dominance in the EU – we would love to know what our readers think…”
What do YOU think? What does mean for Spain and the Euro? Does BREXIT strengthen the hand of the UK or make it weaker ??