Now that Brexit has quietly evaporated from the group think narrative that failed to drive applicative fear into British voters, and markets have rebounded sharply, is there any chance that any other EU member state will follow suit? Actually, yes. On the horizon there is an increasingly interesting national conversation taking place in Italy of all places. A short but compelling piece was written in economics21.org by Desmond Lachman that outlines the framework for such an eventuality and it is not at all far-fetched.
It is commonly known that Italy’s post financial crisis economic performance has been disappointing – to put it mildly. In fact, Italy’s economic performance remains well below the pre-financial crisis levels as measured by most every metric. From GDP to unemployment (11.1%), Italy’s economy is under performing both as a stand alone economy in comparison to historical norms but also as a member state of the EU – which is saying something. Italy’s underwhelming post-financial crisis output/performance will likely have domestic political implications as well. Sometime in November Italy is expected to have a referendum on constitutional reform. In the event the sitting Italian Prime Minister fails to receive popular support in the referendum, the door to a reexamination of Italy’s membership in the EU is very likely result.
Italy is the EU’s third largest economy the world’s third largest bond market and holds the largest amount of debt in peripheral Europe. In the event Italians eventually vote to leave the EU as a result of the frustration with its Prime Minister Mario Renzi and the pan-European experiment, the EU will not recover.
I know, political elites, media and those who know best were certain that a Brexit would never receive popular support from British voters. The same is being said about an “Italexit” at the moment only this time those looking to free themselves from an unrepresentative Brussels based bureaucracy, that has largely hampered Italy’s effort to manage its affairs effectively, have a road map forward. Similar themes; immigration, lack of local legislative control, a deeply frustrated populous and a sense that the future is more bleak in the EU than out of it are all fueling the conversation. Sound familiar?