Beleaguered EU may weaken once more as Italy faces challenges

Beleaguered EU may weaken once more as Italy faces challenges

Beleaguered EU may weaken once more as Italy faces challenges While the EU is still nursing its Brexit wounds, a recently published geopolitical briefing report sees another possible jolt coming. Angelo Katsoras, geopolitical analyst for the National Bank of Canada, says that Italy’s political and economic troubles “could significantly impact an already fragile EU/Euro zone.”

On the political front, Katsoras points to growing anti-EU sentiment, decreasing support for mainstream parties, and a looming October referendum on constitutional reform, which could result in the collapse of the government. Aside from those factors, there is also the issue of the migrant crisis: Italy has become Europe’s main entry point for migrants, with over 150,000 migrants arriving there in 2015, and 77,000 migrants so far this year. This is causing considerable strain on Italy’s resources, increasing tension and the risk of a possible major backlash.

Italy’s economic situation is equally worrisome. Cumulative increase in GDP since the formation of the Euro Zone in 1999 has been a dismal 4%, compared to 26% for France and 39% for the US. Its level of public debt is second only to Greece’s, with most of the sovereign debt being held by the country’s banks. The banks are also struggling with 360 billion euros’ worth of bad debt, about 45% of which are held by ordinary Italians; EU rules dictate that in order for the government to step in and prevent a panic, bondholders must endure an 8% write-off, which introduces another risk of political backlash. High unemployment, aging demographics, and a sharp decline in industrial production all add to the country’s woes.

“Italy is facing a perfect storm of challenges that not only threatens its political stability, but the future of the EU/Euro zone as well,” Katsoras warns.

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