What Does Italy’s Turmoil Mean for International Business?
With a new populist government and a potential stand-off with the EU on the horizon, there are growing concerns around the consequences of Italy’s recent turmoil for international businesses.
Italy’s Political Crisis
Italy, the Eurozone’s third biggest economy, has recently been thrown into a constitutional crisis in recent months, with president Sergio Mattarella rejecting the democratically elected, anti-EU coalition government between the anti-establishment Five Star (M5S) and the right-wing League. Reports have suggested that financial markets reacted badly, with Italian bonds and shares selling off heavily.
Now the government has finally been agreed upon with the president, there are still many concerns that the future of the EU is in threat, at least in its current form. And there has also been a slowdown of growth in the EU this year, which doesn’t allay fears. So it’s no wonder international businesses and investors are wary for the future of Italy, the EU and businesses operating further afield.
The government’s economy minister, Giovanni Tria, is pro Italy’s membership of the single currency, but conflict with the EU is not over yet. There are still worries that Italy might be on course to vote to leave the euro, which would, without a doubt, send bond prices tumbling. If the third largest country in the bloc was to exit the euro, it is unlikely the single currency would survive for much longer.
The coalition has also proposed a new citizen’s income, more generous pensions and lower taxes, which, it has been calculated, will cost Italy’s economy around €60bn a year – or around 3.5% of the country’s GDP. This would also add to the country’s whopping €2.13trn debt, which is the largest in the eurozone, and potentially trigger a Greek-style debt crisis across the EU.
What Does This Mean for International Business?
For any company, to go global is a big decision, and expanding your business abroad, ideally, should come at a time with as little economic and political volatility as possible. But, much to the relief of investors, some experts are arguing that this level of chaos is unlikely to happen any time soon.
Behind its anti-EU rhetoric, the Italian government, they argue, has nothing but a vaguely worded contract that resembles little more than a manifesto. Also, the financial situation is, at the moment, still very far from the heights (or lows) of the 2012 eurozone crisis with Greece, when it was really looking the single currency could collapse – and for any companies going international, that wold have been very bad news.
Also, the new Italian government did not call for a referendum on euro membership in the election, and it looks unlikely they will do so in the near future, either, since they know that most Italians do not want currently to leave the EU, or the single currency. But, as is proving to the case with recent populist political wins, the future is uncertain.
Galvin International is on hand to help at every stage of expanding into international market, including the volatility of the EU and Italy. Get in touch with us to find out more.
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