Brexit & Italy – A match not made in heaven


Even if they stem from very different motivations and causes, these two issues with Brussels and the EU are closely linked and the outcome of one depends on the other.  

Perhaps not surprisingly, UK’s Reuter created the definition of ‘The Great Collision’ to indicate the confrontation-clash of Italy’s budget manoeuvre that’s been staged ever since late summer between Rome and Brussels. Perhaps Reuters are not entirely aware of it but has a link with Italian affairs and its debt.

The two aspects on a collision course towards Brussels, are the Italian one and the British one. On both fronts, the current European governance is playing a historic game.

However, from a strategic point of view, the British situation is much more important than the Italian one. Italy is an economic and industrial pillar of Europe, whilst on top of that, Britain is also a political and military pillar.

A traumatic separation from the EU would have disastrous consequences for both sides, but in the long run, the consequences could be more devastating for Europe. Britain can survive without Europe, well at least it has done so historically.

In the early part of the 1600s, the British colonised the Americas empire, the world’s largest empire. Whilst in this period, the Europeans slaughtered each other mercilessly in the 30-year war, one of the most devastating conflicts known to mankind.

We all know that there are many hurdles Britain will need to jump over in relation to Brexit. There will be a domino effect on various industries. These include essential primary agricultural and pharmaceutical businesses to even simple entertainment business like those in online gambling. An interesting fact is that the top casino sites in the UK have stated that their industry is booming in the UK. Yet another fact is that Brexit is looming.

The Opposite Choices After the Lira and Pound Sterling Crisis of 1992

This most recent situation reminds us of another moment when Italy and Great Britain found themselves on a collision course with Europe. In 1992, both the sterling and lira ended up in the crosshairs of speculation. The financial markets considered the level of exchange against the Deutsche Mark in the European Monetary System to be unsustainable, the ancestor of the single Euro currency.

The Pound Sterling was destroyed at a value of almost 3 Deutsche Mark and the Italian Lira at approximately 750 lire. Both currencies were forced to be devalued due to a speculation led by George Soros. Thus, were expelled by the European Exchange Rate Mechanism.

At that point, the Pound withdrew from all possible suggestions of a connection with another European currency. However, the Italian Lira began a path of compromising to join the Euro four years later. Two opposite choices, that benefitted both economies in different ways.

The European Governance is in Difficulty

Today, the European governance that is centred on the Franco-German bloc, fights a war for survival on two fronts:

  1. To the North with the British. Who must not see too many favourable conditions from Brexit, as it will allow other countries to request for greater autonomy as a condition for remaining in the EU.
  2. To the South with the Italians. Who are not challenging the Euro or its membership of the European Union, but the interpretation and application of fiscal discipline measures.

The problem, as always, is money. For the UK’s case, what must be reimbursed to the EU for Brexit. In Italy’s case, how much money it can spend whilst in debt, for 2019 and thereafter.

The Bottom Line

As the Americans would say: “It’s a nice mess”. The ‘silver line’, the streak of silver that can be glimpsed behind the black clouds of a storm, is called economy. Incredibly, despite the political quarrels crossed between EU Capital Cities, and even within each individual country; despite the tariff war too… the economy, of Europe and Italy is holding up. But the substantial strength of the production system could eventually make the difference and keep politicians and voters at risk of creating disasters.