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EU-Italy: there may be trouble ahead

EU-Italy: there may be trouble ahead
By Damon Embling
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As political uncertainty continues in Italy, eyes turn to possible impact on EU and eurozone


"The destiny of Italy is that of Europe." The words of Italy's central bank governor setting the tone, as the political uncertainty raises all sorts of fears for the EU, and the Eurozone.

In Strasbourg, where the European Parliament's meeting, President Materella won praise for rejecting an anti-euro economist to become finance minister.

"Matarella did a great job in defending Italian society, the Italian economy and the future of his country in Europe," said Udo Bullman, a German Socialist MEP. 

There's a warning that Italy's just a few steps away from the edge of the cliff when it comes to the trust of investors, as markets dump stocks and bonds.

The fear is that repeat elections will become a de-facto referendum on the country's membership of the Euro.

"(The) crisis in Italy won’t be only about restructuring of the debt and default with losses on the Italians," explained Cinzia Alcidi, from the Centre for European Policy Studies.

"There will be also a very deep rooted threat to the entire European project and to the euro. Italy is one of the funding members, it is the third economy so almost the 20 percent GDP of the entire Union so it would be the future of the euro and the Union which will be under threat."

The continuing uncertainty has also helped fuel fresh multi-month lows for the Euro.

EU political leader Guy Verhofstadt tweeted that the crisis highlights the need for eurozone reform - which analysts say could bring positive change.

Alcidi commented: "Most of the reforms imply having in place mechanisms that actually prevent perverse mechanisms, or that could send a positive message also to the investors, rather than having a real short term impact on the economy."

EU eyes will be on Italy's premier-designate, Carlo Cottarelli, a former IMF official, when he comes to a summit in Brussels next month - where the eurozone and banking reforms are set to be high on the agenda.

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