Italy’s Renzi quits following defeat at the referendum; EU in deep trouble

The Dollar Business Bureau

The euro fell to a 20-month low against the dollar, with the Italian PM Matteo Renzi’s resignation. Renzi stuck to his promise to resign if he fails in the referendum on constitutional reform.

Renzi’s decision to quit just after 2 and a half year in power, dealt a severe blow to the EU as Italy is the third largest economy in the euro zone trying to keep it afloat. Markets reacted as instability in Italy could reignite a financial crisis that could be fatal to Italy’s ‘sinking’ banking sector.

Early elections are a definite for Italy and chances are that an anti-euro party, possibly the rapidly gaining popularity, 5-Star Movement, could come to power. 5-Star campaigned hard for a NO vote.

Addressing the nation in a televised program after his defeat in the referendum, Matteo Renzi said, ‘I take full responsibility for the defeat’. He would hand over his formal resignation to the President on Monday.

Renzi’s defeat at the referendum is termed as one of the greatest impacts that the world has seen after Brexit and Trump’s win. This referendum was like Italy blowing the bugle to the remaining EU countries to let them know how Italy is fed up with the euro. With several of Italy’s big banks almost on the verge of a financial collapse, the referendum has made things worse.

Public reaction to Renzi’s defeat was bordering on a cautious note as most Italians were fed up of the devaluation of the lire. ‘Everything we earn now is worth half as much as it used to,’ said a teacher standing outside the Chigi Palace, the centre of action for the outgoing PM.

The lire was 1500 euro when Italy gave up its currency in 1999, but now it is 3000! The Italian people are totally disillusioned by the EU leaders and their policies, whose sole focus they say is to save financial institutions and not the people. 

Though it would be a herculean task to extract Italy from the EU, given its membership of single currency which gives life support to the EU – the idea cannot be dismissed totally.

Reacting to the dismissal of Italy’s PM and it effect on the financial health of the country, Kathleen Brooks of City Index said, “The risk is that investors lose faith, which triggers a run on the bank and a full blown financial crisis that starts in the currency bloc, but could emanate around the world.”

Deutsche Bank boss John Cryan said the Italian vote was ‘a harbinger of renewed turbulence’.