ITALY DOES A BREXIT ! 

This is the headline many Italians will be looking for after the Referendum tomorrow.

Officially, the Referendum has been called by PM Renzi to decide on whether the constitution should be changed to limit the powers of both the Italian Senate and Regions in the country’s bicameral parliamentary system. This was set up in 1948 by the allied powers and specifically engineered to prevent a return to Fascism. 

There is genuine opposition to Renzi’s plans based on the fear that it would lead to a centralising of power. However, the establishment are greatly apprehensive that the electorate will seize this opportunity to express their dissatisfaction with the way business is conducted in the Eurozone.  Many are also unhappy that Renzi seems to have made the vote about himself. This miscalculation may therefore provide voters with the ideal opportunity to punish a serving prime minister.  Renzi has made a commitment to resign if he loses the vote. If he goes, a number of anti-establishment parties like the Five Star movement has promised to hold a referendum on retaining the Euro. This would send the rest of the Eurozone’s leaders into very dangerous territory.

Undoubtedly, the wave of popular unrest globally which swept Cameron out of power in the UK, and  lead to Trump’s victory in the USA, is about to engulf Europe. The EU is a war zone fighting off disintegration and economic collapse from within. The Right is on the march everywhere and both France and Germany face critical national elections next year where incumbent leaders face unprecedented challenges from powerful Eurosceptic movements. 

Furthermore, if the Austrians on Sunday choose as their president the gun-loving populist and Islam critic, parliamentary speaker Norbert Hofer of the Freedom Party, this would further exacerbate the mood in Europe. While Hofer has not threatened to leave the EU, he is committed to a referendum if Brussels moves to further centralise EU powers.

For Italy itself a No vote on Sunday will not only lead to dangerous political instability, but to massive problems for the country’s banking sector for a start. Italian banks hold huge bad non-performing loans which are reported to total some Euros 360billions which are unlikely to ever be repaid. Obviously, this will have a huge effect on the Eurozone’s other banks. There are serious legal and financial constraints which would prevent a bank bailout by the Italian Government. These constraints are imposed by the Eurozone’s banking regulator. So the cherished Eurozone project of closer banking union may be doomed before it’s off the drawing board.

It seems that British PM May has everything to gain by playing a long cool Brexit game. The later she leaves invoking Article 50,  perhaps the more amenable the other EU leaders may be to her exit strategy, considering the other huge and potentially insurmountable problems they may have on their plate!

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