Matteo Renzi's Italian referendum defeat 'threatens survival of the euro,' warn German business leaders
By 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, the head of the Federation of German Industries, or BDI, said the crushing defeat handed to the Italy’s centrist prime minister, Matteo Renzi, had worsened the outlook for the survival of the single currency.
"The risks of a new political instability for economic development, the financial markets and the currency union are increasing further,” he said.
Stock and bond markets shrugged off the immediate risk from the Italian vote, but a leading independent analyst warned that Italy’s membership of the euro on “borrowed time” following Mr Renzi’s defeat at the hands of anti-establishment political forces.
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 30 per cent.
The CEBR said that bitter three-month campaign had demonstrated that 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 5 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 30 per cent.”
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 59% to 41% margin.
Angela Merkel, the German chancellor, said she was saddened by Mr Renzi’s defeat, having supported his reforms, but said that 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 that success of populist forces such as Italy’s Five Star Movement and anti-immigrant Northern League heralded a new phase of instability in Europe.
“It is also a setback for those who want readiness for reform, those who want European countries to change. That is the only way we can deal with globalization,” he said.
Stock and currency markets gave a muted response to Mr Renzi’s defeat which had been widely expected and priced into the market, with main losses confined to shares in Italy’s heavily indebted banking sector. The euro recovered early losses against the dollar.
Meanwhile, in Milan bankers held emergency meetings to discuss whether there was sufficient market confidence to proceed with plans to launch a €5bn recapitalization of Monte dei Paschi di Siena, the world’s oldest lender.
Jeroen Dijsselbloem, the Dutch finance minister and head of the 19-member Eurozone, moved to calm concerns, saying that political limbo left by Mr Renzi’s defeat did not require any immediate intervention from Brussels or Frankfurt.
"It doesn't really change the situation economically in Italy or in the Italian banks,” he said in Brussels ahead of a meeting to discuss the on-going Greek bailout programme, “It doesn't seem to require any emergency steps.”
Downing St has said Britain will "work closely" with the new administration in Italy which emerges after the resignation of Prime Minister Matteo Renzi in the wake of his referendum defeat, according to the Press Association.
The 41-year-old Italian PM threw the EU into fresh turmoil by announcing his departure following the decisive 59%-41% rejection of his plans for constitutional reform.
His resignation sparked a slump in the euro, which fell sharply against the US dollar and hit a four-and-a-half-month low against sterling, reaching a 1.20 exchange rate for the first time since July.
Number 10 stressed that the outcome of the referendum on proposed constitutional changes was "a decision for the Italian people".
Theresa May's official spokeswoman said that the Prime Minister would seek to speak with Mr Renzi - who remains in office until his successor is appointed - over the coming days.
Rome was one of the stops on Mrs May's whirlwind tour of EU capitals in the days after she took office in July, when she was given a red-carpet welcome by Mr Renzi for talks over lunch.
Italian President Sergio Mattarella issued a statement today lauding the referendum's high turnout as "testimony of a solid democracy and a passionate country capable of active participation."
"Before us there are commitments and deadlines which Italy's institutions will have to respect in order to provide an adequate response to the problems of the moment," he added.
Italian media outlets were reporting that outgoing prime minister Matteo Renzi will hold a cabinet meeting of his ministers this evening, possibly to be followed by a formal announcement.
"Renzi is strongly disliked," Antonio Noto, head of IPR Marketing polling institute, told AFP, adding that votes against the PM were "votes against the establishment, but also against his style".
Cecila Carrara, a lawyer in an international firm, said Renzi's "record is disastrous, he has mainly focused on getting good publicity".
The former mayor of Florence also came under fire for failing to get Europe to share the burden of the migrant crisis. Butcher Antonio Canestri told AFP that when it came down to it, "Europe wasn't listening to Renzi".
"Those who voted 'No' were impoverished middle-class families, hit by the economic crisis, without hope of prosperity or well-being for children or grandchildren... (and) the unemployed young," editorialist Maurizio Molinari wrote in La Stampa daily.
Fabrizio Sabelli, professor at the University of Geneva, said "the constitution is not the fundamental problem. It's the improvement of living conditions of so many people who suffer, and this jolt will undoubtedly do us good".
In the areas with the highest jobless rate the "No" camp won with 65.8 percent, while the impoverished south also largely voted "No".
Source Telegraph
