Italian Referendum: Italy could be the next EU Domino to fall
posted by Arthur Foxake
The UK’s vote to leave the EU will not only break the ties between the UK and the bloc, and probably between Scotland and England — it has the potential to destroy the eurozone. This is not the issue at the forefront of people’s minds right now. But it is potentially the biggest impact of all. I am convinced Brexit’s consequences will be neutral to moderately negative for the UK but devastating for the EU.
The main problem is not other countries wanting to hold EU referendums. The problem is more acute. The next referendum to be held in the EU takes place in Italy in October. It is not about the union but about Matteo Renzi’s constitutional reforms. The Italian prime minister is taking a gamble which is no less risky than David Cameron did.
He is asking the Italians to agree a number of reforms to streamline their political system. The proposals are sensible. But Italians view the referendum as an opportunity for a midterm anti-government vote. Mr Renzi promised he would resign if he loses. If he does, it will have been a monumental error of judgment on the scale of Mr Cameron’s. Opinion polls have been showing a small lead for Yes but they are likely to be as unreliable as those in the UK. My Italian friends are telling me Mr Renzi may well lose, in which case he would either resign immediately or call elections in early 2017.
The implications of Brexit for Italy are extremely troubling for three reasons. First, consider the economic impact. Italy’s economy has been in a weak recovery after a long recession. The British vote will have a significant effect on growth in the eurozone. But for Italy this means a reversion to a growth rate to below 1 per cent or worse.
Second, watch out for the Italian banks, which are woefully undercapitalised. A recent scheme to recapitalise the system has been a disappointment. The only options left to save it are a programme under the European Stability Mechanism, the rescue umbrella, which Mr Renzi will surely resist, or a break with a long list of EU rules on competition policy and bank bailouts.
Third, and most important, the political impact of a lost referendum will be disastrous. Either Mr Renzi keeps his promise to resign or he limps on to the next election. The technical details of the scenario that would then prevail are complex but the party most likely to benefit is the populist anti-establishment Five Star Movement. Beppe Grillo, its leader, last week reiterated his call for a referendum on Italy’s membership of the eurozone. As the results of the recent mayoral elections in Rome and Turin have shown, Mr Grillo’s party should not be underestimated.
The political dynamic in Italy is not much different from the one in the UK. The electorate is in an insurrectionary mood. The country has had virtually no productivity growth since it joined the euro in 1999. The Italian political establishment has until recently been as dismissive of its chances of losing the referendum as the British establishment was until Friday morning. They are still dismissive of the chances of a Five Star victory — and will be until the moment it happens.
In my view, that outcome is at least as probable as Mr Renzi emerging victorious from this mess. The Italian public has reasons to demand fundamental change. Unlike in the UK, unemployment there is high. Mr Renzi’s own administration has failed to break with corruption scandals and, most important of all, has failed to sort out the country’s economy.
A Pew Research Center poll on attitudes towards European integration in the largest member states suggests that the Italians and the Greeks view the EU’s economic governance most negatively. I am not surprised.
Nor am I surprised that people are beginning to blame the euro for the economic problems. An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period.
It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash. But my sense is that those who would advocate an Italian departure might even relish bringing down the whole house.
To prevent such a calamity, EU leaders should seriously consider doing what they have failed to do since 2008: resolve the union’s multiple crises rather than muddle through. And that will have to involve a plan for the political union of the eurozone countries.
Britain is not the cause for any of this. The eurozone and its appallingly weak leaders are to blame. But Brexit may well be the trigger.
Italy's exit would mark the incontrovertible end of the European "project" that has been the foundation for the continent's economic progress over the last 50 years. Fragmentation and economic decline would surely follow in due course, It is imperative for Ms. Merkel to do what she must to give Mr. Renzi the breathing space he needs to win the referendum. Recapitalizing the Italian banking sector in the least politically damaging way to Italian pro EU forces has to be priority number one. If that requires a fudge of agreed EU banking rules, so be it. The EU has proven itself to be the master when it comes to fudging rules and for once it has an opportunity to put its expertise to good use. There will be a time for EU mandates to break once and for all the systemic risk that originates from the too cozy relationships between states and their "captive" banking sectors. That time is not now. Preserving unity has to take precedence.
People say "the Brexit vote was quite close", 52:48. This was based on absolute voter figures but if the voting is examined by constituency, as per the British general election system, we would find that the country would have split roughly 70:30 in favour of leave. Under this same system, UKIP gained more votes in 2015 than the Lib Dems and SNP combined but they managed just one seat in parliament against over 60 for the other two parties. it seems it all depends on how you view "democracy" and whether it suits your particular view.
Jul 1, 2016
"The natural and potentially stable outcome for Europe is now Europe 2.0 – two European unions in effect who live together nicely.
Eurozone Europe, bringing together those relatively few countries that are willing to share sovereignty and effectively merge into a single political/economic space.
And Wider Europe, countries who are not in the EZ but agree wide-ranging free trade arrangements among themselves and with Eurozone Europe. These two phenomena are bound together by treaty and agree not to fight. Wider Europe would have its own light-touch coordinating arrangements but all done by national governments – no shared Parliament or permanent bureaucracy.
The huge advantage of this set-up is that it simplifies things for everyone. The Eurozone Europeans can integrate deeply as they see fit, and not have the current incoherent confusion of countries like Poland being formally committed to EZ membership but with no intention of ever joining it. Some countries currently within the EZ might leave it as the burdens are unsustainable? Good!
Plus it allows Turkey, Ukraine and maybe even Russia to join the Wider Europe free trade team as the ‘depth’ of integration required is much less intrusive and rigid.
A Leave vote by the UK accelerates the rationalisation Europe needs on something like the above lines. The UK would approach Berlin, Paris, Madrid, Rome and Warsaw with an invitation to be bold – to treat Brexit as the opportunity strategically to resolve all sorts of contractions and potentially ruinous anomalies. They would take a deep breath, but be open to looking at the idea as it in fact offers a new way of looking at Europe’s Interests and Needs.
The ensuing haggling would take some years to sort out, but with a clear better plan in place the uncertainty would be mitigated for everyone. The fact that the Commission in its current arrogant form would be hugely diminished in the lives of Wider Europe would please everyone, except the Commission..."