EUROPE'S HEARTLAND CHANGE OF HEART
By Ruma Dubey
Referendum is undoubtedly THE word of the year 2016. Brexit and now Italy, both have thrown the Euro into a complete tizzy, southwards. The Euro hit a 20-month low today and one does not know at this point of time as to where the bottom lay.
In a move which shocked the world, Italian voters rejected constitutional changes backed by the government, prompting Prime Minister Matteo Renzi to announce his resignation. Prime Minister Matteo Renzi’s referendum was about overhauling Italy’s legislature to make it easier to pass laws, including measures meant to make the country more competitive.
This means that the Eurozone in once again thrown into complete chaos. This is the EU’s third largest economy and what this means is that for some time now, Italy will have a caretaker government now and elections next year.
What is worrying the EU is the victory of an emerging new party – 5 Star Movement. It is essentially antiestablishment and it has given the call for a nonbinding referendum on Italy’s euro membership, wanting to abandon EU budget rules and in fact has mooted the idea of having a parallel currency. If elections are held and 5 Star wins, it could threaten the integrity of EU and existence of the common currency.
Three major elections, as such, are scheduled for 2017 in Europe – France, Germany and Netherlands and now we have Italy too. And it has been seen that in all these countries, mainstream political parties have been losing big time to right and extreme-right populist movements. Though to some extent, Austrians voted against a far right party who was anti-immigrant and wanted borders to be reworked. In France, Hollande has said that he would not be seeking re-election in May and currently, his Socialist party is extremely unpopular.
And Greece and its bailout, the usual IMF and German haggling, refusing another bailout; all are once again in fore. Greece owes huge money and its debt repayments are knocking at the door – on 7th Dec it is €299.1 million it owes to IMF, €3.60 billion on Dec. 9 it owes to Treasury bill holders. Germany and Netherlands have promised their Parliaments that they will not ask for more money for Greece, unless IMF agrees to lending. And IMF has said that it will not lend unless it is satisfied that Greece’s debt burden is sustainable. It all depends on how the Eurozone negotiates with IMF, getting it to give more money to Greece, thereby bringing on Germany and Netherlands on board too.
Thus in the coming months, Europe will continue to remain in a state of flux and the currency will remain volatile. Italy’s referendum will not have the same impact as the Brexit but the EU will need to do anything and everything to keep all its members in its herd.