Sunday 17 December 2017

Turmoil of Italy vote threatens survival of the euro

The euro’s survival is under increased threat following the political instability caused by the Italian referendum result, German business bosses warned yesterday, raising further questions about the long-term viability of Italy’s membership of the currency union. File image. Photo: Andrea Comas/Reuters
The euro’s survival is under increased threat following the political instability caused by the Italian referendum result, German business bosses warned yesterday, raising further questions about the long-term viability of Italy’s membership of the currency union. File image. Photo: Andrea Comas/Reuters

Barney Henderson

The euro's survival is under increased threat following the political instability caused by the Italian referendum result, German business bosses warned yesterday, raising further questions about the long-term viability of Italy's membership of the currency union.

Ulrich Grillo, head of the Federation of German Industries, or BDI, said the crushing defeat handed to Italy's centrist Prime Minister Matteo Renzi had worsened the outlook for the survival of the currency.

"The risks of a new political instability for economic development, the financial markets and the currency union are increasing further," he said.

The Centre for Economics and Business Research (CEBR), a leading economics consultancy, said that following the vote it now estimated the chances of Italy staying in the euro for the next five years had fallen below 30pc.

The CEBR said the bitter three-month campaign had demonstrated Italian voters would not tolerate indefinitely the chronic unemployment, stagnant wages and Brussels-imposed austerity that now came with euro membership.

"There is no doubt that Italy could stay in the euro if it were prepared to pay the price of virtually zero growth and depressed consumer spending for another five years or so," the group said in a note.

"But that is asking a lot of an increasingly impatient electorate. We think the chances of their sustaining this policy are below 30pc."

European leaders did their best to put a brave face on the loss of a prime minister who had embraced European economic reforms, but whose back-me-or-sack-me call over the referendum was rejected by an emphatic 59pc to 41pcmargin.

German chancellor Angela Merkel said she was saddened by Mr Renzi's defeat, having supported his reforms, but said Europe would continue on its current course, regardless.

"From my point of view, we will continue our work in Europe and we have set the right priorities," she said. Frank-Walter Steinmeier, the German foreign minister, gave a franker assessment, conceding that the rejection of Mr Renzi was "not a positive development in the case of the general crisis in Europe".

Manfred Weber, the leader of the main conservative group in the European Parliament, said success of populist forces such as Italy's Five-Star Movement and anti-immigrant Northern League heralded a new phase of instability in Europe.

Britain's decision to leave the European Union had started the bloc's "disintegration", Italy's minister for European affairs said last night.

Sandro Gozi, an ally of outgoing Italian Prime Minister Matteo Renzi, said his country was facing a "period of uncertainty" following the vote this weekend to reject a planned constitutional reform.

The centre-left Democratic Party minister argued that the referendum defeat represented a missed opportunity to reform European institutions and save the EU from falling apart.

"I think that the beginning of European disintegration has started with Brexit," Mr Gozi told BBC Radio 4's Today programme.

"It is up to the other 27 governments to re-launch Europe. That was our policy, that was our goal as the Renzi government.

"It is clear that now Europe loses a major political actor to its relaunch."

Speaking on the same programme, a spokesperson for the Five-Star Movement took aim at the European single currency.

"The euro is a problem for Italy right now and we would like to get people's voices on that because we never did," Daniele Caprera said.

"There were so many promises made by the old politics which people believed. I think the euro is damaging the Italian economy." (© Daily Telegraph London)

Telegraph.co.uk

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