Italy's actions cannot be understood without considering the size of its economy and, by extension, the scope of the damage it can do to its neighbors. An Italian exit from the eurozone would be painful for the country, to be sure, but it also would create the risk of contagion across the Continent, not least because of the billions of euros in Italian sovereign debt other banks in the eurozone hold. While the currency area could have survived a Greek exit two years ago, it may not survive an Italian one today.
The size of the Italian economy influences the country's behavior in at least two ways. For one, it gives politicians reason to believe they have leverage when demanding concessions of their EU partners. For another, it allows Euroskeptic leaders to promise voters there is a brilliant future for the country outside the eurozone. Thus Italy is different from smaller economies such as Greece or Portugal, where leaders had little leverage when negotiating with their international lenders. Even during the height of their crises, most members of the Greek and Portuguese establishments (and a majority of the electorates in each country) thought leaving the eurozone would make their countries poorer and more isolated. In Italy, the promise to "make Italy great again" seems easier to sell to voters.
Finally, Italy's situation will be an important factor in the upcoming talks on reforming the eurozone. After German elections in September, Europe's governments and institutions will start discussing ways to make the currency area more resilient to future crises. France, Spain and other eurozone members already have issued proposals to address the fact that the eurozone is a monetary union without a fiscal union — its members share a common monetary policy set by the European Central Bank but have individual fiscal policies — and to increase economic convergence among member states, including greater transferences of resources from the bloc's core to its periphery.
keyboard shortcuts: V vote up article J next comment K previous comment