Could Italy Bring Down the Euro?

by Soeren Kern • July 14, 2016 at 5:00 am

A move by Italy — the third-largest economy in the eurozone — to abandon the euro could strike a potentially fatal blow to the currency and to the bloc itself.
Meanwhile, at more than 130% of GDP, Italy has one of the biggest public debt burdens in Europe, second only to Greece.
"A perfect storm of slow or zero Italian economic growth, low interest rates and politically connected, often corrupt, lending have combined to create a situation where the Italian financial system is in need of a large rescue." — Mihir Kapadia, Sun Global Investments.
M5S blames the euro for Italy's woes, and many Italians agree.

Luigi Di Maio, who, polls show, has a very good chance of becoming Italy's prime minister, has reiterated his party's long-standing call for a referendum on the euro, saying "The euro as it is today does not work." (Image source: M5S video screenshot)

The eurosceptic Five Star Movement (M5S) has overtaken Prime Minister Matteo Renzi's Democratic Party (PD) in several opinion polls and is now the most popular political party in Italy.

The poll results represent a significant shift in Italy's political landscape and have potentially far-reaching implications for the future of the European Union.

M5S, which would win national elections if they were held today, has called for a referendum on whether Italy, which is facing the collapse of its banking system, should keep the euro, the single currency of the European Union, or bring back the Italian lira.

A move by Italy — the third-largest economy in the eurozone — to abandon the euro could strike a potentially fatal blow to the currency and to the bloc itself.

An Ipsos poll, published by the newspaper Corriere della Sera on July 5, gave M5S 30.6% of the vote, up from 28.9% in April, while Renzi's center-left PD fell to 29.8% from 31.1%.