EU Economics

Italian referendum: What the defeat of Renzi means for the EU and eurozone

The resignation of Matteo Renzi is a devastating blow for the EU and the eurozone. Here is a look at what the ‘no’ vote means for Europe.

Italian Prime Minister Matteo Renzi resigns Getty
Italian Prime Minister Matteo Renzi resigns

The ‘no’ vote in the Italian referendum has sparked political and economic uncertainty which will further undermine the EU and its single currency.Pro-EU Prime Minister Mr Renzi resigned last night, paving the way for the rise of Eurosceptic anti-establishment parties in Italy.

The EU is worried that the Italian referendum result could help propel anti-EU parties to victory in French, German and Dutch elections next year.

Beppe Grillo AFP Getty

Beppe Grillo has called for a snap election in the wake of the Italian referendum

Mr Renzi called the referendum over consitutional reforms but it turned into a vote over his leadership, the EU and Italy’s membership of the euro.The ‘no’ vote could now plunge the eurozone into economic chaos by triggering financial market turmoil at a time when Italy’ is already struggling with a banking crisis.

The euro has fallen against the pound and the dollar while shares in Italian banks fell sharply before recovering this morning.

Kathleen Brooks, research director at City Index Direct, said: “”While the markets are likely to remain nervous as we start a new week, they haven’t fallen off a cliff, so far.”

Beppe Grillo, the leader of the anti-establishment Five Star Movement, has already called for a snap election in the wake of Mr Renzi’s resignation last night.

If the Five Star Movement seizes power at the next election, it has pledged to hold a referendum over Italy’s membership of the eurozone.Simon Tilford, deputy director of the Centre for European Reform (CER), said that an Italian referendum on the eurozone would lead to considerable instability in Europe.

Mr Tilford said: “The act of calling that referendum would precipitate a crisis in Europe. It would embolden populist and anti-Europe parties elsewhere.”

Adriano Bosoni, Stratfor’s senior European analyst, said the ‘no’ vote would weigh on Italy’s sovereign debt but aid from the European Central Bank would be able to contain the impact.

He added: “If you take a look at the political environment in Italy, Renzi’s center-left Democratic Party is probably the only mainstream party that still supports the EU and the eurozone.”

The EU Parliament’s Brexit negotiator Guy Verhofstadt said stressed that the Italian referendum actually was over domestic constitutional reform – not the EU.

“Italian voters were craving for the opposite: fresh blood and new ideas in Italian politics. No wonder Renzi lost.”Mr Verhofstadt said that Italians want an end to the economic and migrant crises and a “defense Union that enables Europe to back its soft power with hard one”.

He added: “As long as these proposals are not on the ballot and politicians continue to play party political games with referenda, people will continue to vote ‘no’.”

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The one thing the EU can not abide is democracy in the hands of free thinking people. I hope their dictatorship days are numbered. There is only so long they can go on papering over the cracks. With a couple of key eurocrats stepping down next year it seems the rats have already begun to desert the sinking ship EU.

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