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Is A New 'Brexit' Bubbling In Italy?


Italian Prime Minister Matteo Renzi with German Chancellor Angela Merkel (center), and French President Francois Hollande (right) in Berlin in June

Italians voted in a referendum on December 4 that could gauge anti-EU sentiment in the country. The vote, which follows Britain’s Brexit referendum in June and Donald Trump‘s election in the United States, again sees rising populist forces challenging an established order in a contest too close to call in advance.

In the referendum, Italians will decide whether to approve a proposal by pro-EU Prime Minister Matteo Renzi to increase his powers so that he can push through economic reforms. Anti-EU parties are urging Italians to vote ‘No’ in hopes of driving Renzi from office and clearing the way for a harder push to get Italy out of the eurozone or remove it from the European Union altogether.

Italian officials say turnout was heavy. The Interior Ministry said on December 4 that more than 57 percent of Italian voters had gone to their polling stations by 7 p.m. local time.

How likely is a Brexit Italian-style and what would be its consequences? Here are three things to consider.

What’s at stake in the December 4 referendum?

The December 4 referendum is not directly about the EU. It is about increasing the prime minister’s executive powers by limiting the size and strength of the Italian Senate -- where Renzi has faced resistance along regional lines to reforms he hopes will help strengthen Italy’s sluggish economy.

But because Renzi has very publicly vowed to step down if voters do not approve his proposal, anti-EU forces have seized upon the referendum as a chance to unseat him. A Renzi resignation would require a new government to be formed, something that could offer anti-EU parties the chance to enter a caretaker government or compete with renewed strength in early elections.

“We should take what Renzi said seriously; if he loses the referendum he will certainly at this point have to resign,” said Giovanni Orsina, a professor of political history at Luiss University in Rome. “If the ‘No’ camp prevails, the greatest victory will belong to the anti-EU populist camp.”

Beppe Grillo, an Italian comedian, actor, blogger, and head of the populist Five Star Movement.
Beppe Grillo, an Italian comedian, actor, blogger, and head of the populist Five Star Movement.

But even if Italy’s two populist anti-EU parties -- the Five Star Movement and Lega Nord (Northern League) -- stand to gain strength from a possible ‘No’ vote, just how much so is hard to know.

“All the anti-EU forces are in the ‘No’ camp but in the ‘No’ camp there are also pro-EU forces that are against Renzi,” said Orsina. “So, the picture is more complicated than an outright confrontation between pro-European and anti-European forces.”

The last opinion polls conducted ahead of a mandatory moratorium three weeks before the referendum date showed the ‘No’ camp leading by an average of 4 to 5 percentage points – too close to predict the outcome of the referendum with certainty.

How strong is anti-EU and anti-euro sentiment in Italy?

Observers say the populist parties are tapping into genuine unhappiness among Italians.

“The chances of Italy deliberately choosing to leave the EU are quite low, but the chances that Italy will leave the eurozone and bring about the collapse of the single currency are moderate to good and probably getting stronger at the moment,” said Steve Davies, an economist at the Institute of Economic Affairs, a free-market think tank in London.

He said that since Italy joined the eurozone, the Italian economy “has not grown by more than 1 percent in any one year,” creating huge public frustration both with Brussels and perceived inefficiencies in the Italian economy.

Much of the anger has focused on the euro because belonging to the single currency prevents Italy from stimulating its export economy by devaluing its money, something it frequently did when it had its own lira.

Still, many Italians are leery of quitting the EU, even as Britain has now set the precedent of a member state deciding to do just that.

Inflated euro currency sign outside the headquarters of the European Central Bank in Frankfurt
Inflated euro currency sign outside the headquarters of the European Central Bank in Frankfurt

“In the case of Italy, getting out of the European Union does not just mean getting out of the European Union, it means getting out of the eurozone,” said Orsina. “Changing the currency, getting back to the lira and facing all the consequences of that kind of action is a gigantic leap in the dark.”

Italy’s anti-EU movement itself is divided over what it wants. The Five Star Movement, with around 30 percent of popular support, courts both right- and left-leaning Italians as it calls for holding a referendum on the euro but not on leaving the EU. The far-right Lega Nord, with around 12 percent support, is fiercely nationalist, anti-immigrant, and pledges to take Italy out of the EU. The two parties have shown no indication so far of working together.

What would be the impact of Italy leaving the EU?

Italy is the EU’s third-largest economy after Germany and France, so many economists say that an Italian exit from either the euro or the EU would be a deathblow to the union.

“If it becomes likely that Italy may leave the euro, then what will happen immediately is that investors will become spooked and there will be a sharp rise in the yield on Italian debt of all kinds and most notably on government debt, which is a large amount, but also private debt,” says economist Davies.

He says that, in turn, would cause not only a crisis in Italy’s already fragile banking system, which holds much of the country’s debt, but also have a knock-on effect on partner banks across Europe. The resulting weakening of investor interest in the euro would likely lead to an unravelling of the EU in its current form.