Article 50 has been triggered, and Brexit is becoming a certainty. Perhaps it is the only one at the moment. The final outcome will entirely depend on the long and exhausting negotiations between the UK and the EU. The worst-case scenario is the so-called “Hard Brexit”, which is said to entail a 10-15% loss to the European budget, with harmful effects on the community policies.
However, it is very unlikely this will occur, as both parties have interests in not pursuing such a harsh path. A hopeful signal was the tone of the letter signed by Prime Minister May triggering the Brexit process.
More Painful for Some
There will, of course, be countries suffering more than others from the new order of things. How will the Italian economy be affected? 2016 Standard and Poor’s Brexit Sensitivity Index asserts that Italy is one of the least affected countries, with an index of 0.4, compared to a median value of 0.8 and a maximum value of 3.5 for Ireland.
Other estimates by the Italian Government forecast that Brexit will negatively impact the Italian GDP by 0.5/1.0% over the 2016-2017 period. Regarding exports, Sace, a joint-stock company of the Italian investment bank Cassa Depositi e Prestiti, stated the losses could be heavy in 2017, ranging from 3% to 7%, with a value between €600m and €1.7bn.
According to OECD Chief Economist Catherine Mann, in 2018, exports are expected to shrink by 1%, stabilising the trend. A big share of the Italian exports to the UK comes from the food industry, which has already been severely affected immediately after the Brexit Referendum in June 2016.
According to Coldiretti, the Italian farmers’ confederation, food exports dropped by 9%, with a plunge of 13% in olive oil alone. In fact, it is plausible that the UK will reposition towards the extra-European countries.
How Italy Can Profit
From a wider economic perspective, Italy’s weight in the EU might increase, both in opportunities and responsibilities. The country’s Minister of Economy and Finances revealed that Italy is taking actions to become competitive in the new equilibrium. He aims to lower the corporate tax rate to 24% and introduce fiscal benefits for those willing to return to Italy.
Milan Takes the Lion’s Share
However, the cherry on top could be Milan’s push to become Europe’s new financial hub. In March, Mr Bernando, President of the Finance Commission of the Chamber of Deputies, built up a team of 130 experts to fight the fierce competition by other candidate cities like Frankfurt, Amsterdam and Dublin.
Milan aims to become a key hub not only for the financial sector but also for tech, biomedicals and infrastructure. Among others, the sectors that could be brought to Milan from London are middle and back office, euro clearing and the European Medicines Agency.
In order to realise this paramount project, there are some €2bn in investments ready to be set up. What is left is to promote Milan’s (and Italy’s) potential in the EU.
The attractiveness of Italy for investment and economic activity is not unknown, it only needs to be boosted. The UK is a good partner and market, but the country has a well-diversified portfolio of partnerships, so that, even thought stands to lose some ground in the aftermath of Brexit, it will be able to recover and exploit new opportunities soon.
Italy appears to be prepared to move ahead as an early winner of the new European economic equilibrium. The rumoured aversion to change, affirmed with the No victory in December’s Italian referendum, seems just a distant memory now.