Politics and economics are never mutually exclusive; the recent political unrest in Italy has only furthered this notion. The turmoil in Italy mounted in early summer, after President Sergio Mattarella rejected the nomination of Paolo Savona as economy minister. This was due to the fact they believed would abandon the Euro and the European Union.
Follwing this, Mattarella went ahead to ask former IMF official, Carlo Cottarelli to form an interim government. However, both parties raised objections to his proposal. They prefered that new elections be held instead. With Italy at a crossroads, economic commenters have wondered what it could mean for consumers, markets, and the global economy.
To Leave or Not to Leave (The EU)
The decision of whether to remain a part of the EU will have implications on the global market and consumers. Although, strategists are still hopeful that Italy will not dump the EU or the euro. There’s more reason to believe the move is doubtful to happen as the Five Star Movement and the Northern League have also admitted that leaving the euro was never part of the plan.
Politico.eu quoted 5Stars’ leader, Luigi Di Maio as saying it was “no longer the right time” for Italy to pull out of the EU. The belief is that internal struggle and a new election in the euro zone’s third economy could cause severe economic disruptions and lower consumer confidence in Italy, Europe, and beyond.
The Market Reacts
Now, it seems not everyone shares the belief to stay. CNBC reports that Tuesday morning, Claudio Borghi, leader of the economic policy of the Lega party stated, “I am truly convinced that Italy would solve most of its problems if it had its own currency.” These comments have spiked a wariness that is reflected in the market. CNBC continued that Italy’s main index fell, “about 1.5 percent and shares in Italian banks were again in the red. Banco BPM dropped 5 percent, UniCredit was down 3.2 percent, and Intesa Sanpaolo fell 2.7 percent,” after the statments.
The fear that interest rates could spike worldwide, has left an atmosphere of risk in its wake. The rise would negatively impact different sectors of the economy including consumer spending, housing, and business investment due to the decline in purchasing power.
Despite reassurance that a plan to pull out of the EU is not in the cards, many are waiting to see what unfolds as we approach Italy’s October 15th deadline to submit their budget to the EU.