May 1, 2017    5 minute read

Is Italy’s Euro Exit the Next Threat to the European Union?

A Constitutional Problem    May 1, 2017    5 minute read

Is Italy’s Euro Exit the Next Threat to the European Union?

As the world keeps a close eye on the second round of the French elections, a new threat to the future of the European Union has become apparent: Italy. Marc de-Muizon and Mark Wall of Deutsche Bank argue that investors might consider the risk of Frexit behind their backs, given the results of the first round, completely in line with polls. On the other hand, they point out that the risks for the EU are far from over, with the oncoming elections in the United Kingdom in June, elections in Germany in September, and elections in Italy in April 2018, even though the Italian government has not decided on a deadline yet. The greatest danger to the EU might well come from the Italian elections, even if financial markets are not yet aware.

The latest polls show clearly an increasing gap between the Five Star Movement, the strongest political movement in Italy, and the Democratic Party, the largest political party which is both pro-EU and pro-Euro. Beppe Grillo’s party polls at almost 30%, while the Democratic Party lies behind on 26.6%. Finally, third and fourth positions in the ranking are occupied by two right-wing political parties: Fratelli d’Italia and Lega Nord, which, despite some differences, are ideologically closer to the right-wing populist Le Pen’s and Wilders’ parties.

Why Italy is Unique

Until now, the latest elections held in several European countries (Austria, Netherlands and France) have followed a regular pattern. On the one hand, a left-wing movement, supporting European values of unity, cooperation and free trade; on the other, a far more conservative party with proposals such as greater control over migration.

The situation is completely different in Italy. Even though there is an intense clash going on between left and right parties, polls point to the Five Star Movement as the favourite to win the next elections. This movement was founded by Beppe Grillo (a Genoese comedian, actor, blogger and political activist) in Milan on the 4th October 2009. It was established by a large group of voters to replace Italian parliamentarians, deaf to the needs of ordinary workers and too often involved in political scandals. For this very reason, it represents a unique movement around Europe and welcomes voters of varying political backgrounds, who have a shared commitment to rid Italy of its current ruling class.

Despite some of Five Star’s initiatives proving successful at a local level, significant challenges have debilitated many of its efforts in Europe. While its MPs have made several claims to have no intention of leaving the European Union, it seems clear that the party is openly against the euro. One of its politicians, Alessandro Di Battista, argues that the euro has led to a decrease of the real purchasing power and industrial competitiveness, thus increasing unemployment and social disintegration. The Five Star Movement’s intention is to launch a “non-binding” referendum regarding Italy’s place in the eurozone. Unfortunately, this proposal is not as easy as it may seem.

Italy’s Euro Exit

Firstly, the effects of a not binding referendum would be the same as that of a binding referendum. Indeed, if the Italian population decide to leave the eurozone and return to a national currency, the government cannot ignore the will of its people. Therefore, in either case, this might be resolved in triggering the required procedures and negotiations. Of course, financial markets’ reaction would be the same.

Second, the Italian constitution only permits an abrogative referendum. It does not specify or allow a “non-binding” referendum. This option would requires an ad hoc constitutional law – as took place on the 18 June 1989, when Italians were given a choice to give or withdraw a constituent mandate from European Parliament.

Even if a non-binding referendum were to be launched, allowing Italians to vote against staying in the eurozone, no mechanism exists in Europe to leave the euro without leaving the European Union at the same time. The Treaty of Lisbon’s articles, concerning monetary policy and the euro, only concern entry into the eurozone, not its exit. Therefore, the only way to return to a national currency at the moment is to leave the European Union, as disciplined by Article 50, recently triggered by the United Kingdom.

Constitutional Obstacles

Furthermore, the option of leaving the European Union would also run up against an obstacle. The Italian Constitution, defended vigorously in its actual configuration by the Five Star Movement when it came to the December 4th referendum, doesn’t allow a referendum either on the euro or the European Union. Article 75 expressively forbids an abrogative referendum on laws coming from the ratification of international treaties.

Therefore, such a referendum is not allowed. The only solution in leaving the European Union would be changing the constitution beforehand – a delicate and challenging route. Legislative proposals to modify the constitution require approval by the Chamber of Deputies and the Senate of the Republic. Two distinct deliberations by an absolute majority are expected. Furthermore, an interval of at least three months between the deliberations is required.

Even though it is unrealistic that one single political party might be able to bring Italy out of the European Union, a modification of the constitution is not unlikely. Euroscept movements might represent a significant portion of voters and gain the majority of seats in Parliament. Therefore, it is more than probable that the two biggest anti-Euro parties, Five Star Movement and Lega Nord, may soon decide to work together to accomplish their political aims.

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