Australian economist Bill Mitchell says Italy will likely be the nation to bring down the euro ahead of a string of elections this year, if populist Five Star Movement (FSM) comes to power.
“It’ll only take one big political shift and I guess everyone’s banking now on Italy because [FSM leader] Beppe Grillo looks like he’s got a much better chance than Marine Le Pen in France,” Mr Mitchell told nestegg.com.au.
“I don’t think the French will leave, I think it’ll be the Italians.”
The prediction comes in the wake of former Italian Prime Minister Matteo Renzi’s decision to step down in December, following an unsuccessful referendum to renegotiate government powers.
Meanwhile, the world’s oldest bank, Monte dei Paschi di siena’s appeal to the Italian government for a bailout just weeks ago at the expense of Italian investors is likely to encourage support for FSM, already riding a wave of populism.
“I think the political resonances around Europe are moving in that direction [and while] I don’t think Marine Le Pen can win the presidency, she’ll rock the boat severely. There’ll be a major shift in the Italian elections, the Spanish electoral system can barely deliver a government and Greece is headed for even more instability in the next month,” Mr Mitchell said.
“In the long run, it’ll become apparent that someone will leave or get kicked out of the union,” he added.
“Economically, it’s dead in the water. It can’t possibly deliver long-term prosperity and the damage that it is causing and the intergenerational costs it’s creating are going to be massive.”
However, it remains to be seen where Europeans will draw the line.
“While I think that the majority of Italians still want the euro, they’re living in a dream world. They want the euro but they also don’t want austerity and they can’t have both under the way the union is constructed,” Mr Mitchell said.
“Their banking system is insolvent. It’s being propped up at the moment, but how long the ECB allows the banking system to remain intact is a good question. I suspect they will keep propping it up for now simply because if the Italian banks collapse, it’ll be chaos.”