Italy as the epicentre of the next financial crisis: Is Europe’s Financial Stability under threat?

Aleksandra Kusnierkiewicz is a final year student of International Relations. Her research interests include geopolitics, migration, women in militarism and gender politics. Her article explores the possible impact of the Italian economic crisis to Europe’s financial and political stability.

In October, the EU executive body rejected Italy’s draft budget and advised changes aimed at spending reduction. Italy’s populist government reaffirmed it would stick to its high-spending plans designed to “abolish poverty”[1]. This exchange, unprecedented in the recent European political history, led the Commission to threaten Italy with sanctions that would amount to billions of euros in costs to the Italian economy.[2] The possibility of reconciliatory talks still persists. However, the threat to the continent’s financial stability looms over Europe.

The European Commission objects to Rome’s budget proposal because it believes it will make it impossible for Italy to reduce its debt and avoid deficit breach, expected to reach 3% by 2020.[3]  Meanwhile, Mr Tria, currently serving as the Italian Minister of Economy and Finances, and leading figures in the government such as Luigi Di Maio, leader of the Five Star Movement, resort to much repeated and increasingly popular arguments to deter the imposition of Brussels’ recommendations: EU fiscal rules are an unjust breach of sovereignty. Greater economic autonomy would allow the government to tackle grave issues such as low pension benefits and inequality-inducing taxes.[4]

This ‘crisis’ is nothing new and it has been steadily escalating since 2010. European efforts have concentrated on Greece for a long time; the difference, however, is that Greece was small enough to rescue. Italy, with the eurozone’s third-largest economy, is too important to lose – and too big to save.[5] But with the growing debts, investors of the European Central Bank are less and less likely to lend to Italy’s government. If the Italian bank assets  become worthless, then these banks are lost. The economic crisis becomes inevitable but rescuing the entire system is beyond the EU’s (mainly Germany’s) capacity.[6]

Italy is not the only place where the repercussions would strike. Financial crisis is likely to arrive shortly and there are multiple points that could trigger it: President Trump’s trade war with China, Britain’s exit from the European Union, Turkey’s political and economic crisis. Italy however, is at the top of the list. But in contrast to the 2008 crisis, central banks may not be equipped to deal this time, as main mechanisms were used up during the last turmoil.[7]

On top of that, the Italian crisis poses a serious political challenge: if the EU fails to discipline its erratic member, it will lose credibility. However, a hard-line approach could further isolate Italy and provide an asset for its anti-EU populist government. This seems likely, as the government’s rejection of the Commission’s instructions was perceived as an opposition to the EU hegemony and attracted significant public support.[8] The political significance of the European Union’s response cannot be underestimated: in Greece, the grievances resulting from the forcefully-imposed austerity measures continue to shape the country’s politics and seriously threaten the Union’s stability. Internal support of its members is vital for the project’s survival.

Luigi Di Maio claims that Italy’s economic decisions are a sign of choosing the Italian people over markets.[9] But it’s important to ask whether prioritizing domestic concerns in an increasingly globalised world is feasible. A primarily Italian drama puts the Eurozone at risk while the world economy remains unstable.[10] It seems more and more that the global, domestic and personal are irreversibly intertwined. And yet, cooperative measures between Rome and Brussels remain unlikely.

[1]Ewing, Jack and Horowitz, Jason, “Why Italy Could Be the Epicenter of the Next Financial Crisis”, NY Times, 2018. Accessed 23.11.2018:

[2] “Italy budget ‘sleepwalking into instability’ – Commission”, BBC, 2018. Accessed 24.11.2018:

[3] Hall, Ben, “Brussels warns Italy of 3% deficit breach in 2020”, Financial Times, 2018. Accessed 24.11.2018:

[4] Brunsden, Jim. “Brussels says Italy should face sanctions over budget”, Financial Times, 2018. Accessed 23.11.2018:

[5]Horowitz, Jason, “Italy May Be ‘Sleepwalking Into Instability,’ E.U. Says, and Weighs Penalty”, NY Times, 2018. Accessed 24.11.2018:

[6] O’Grady, Sean, “Italy is pushing Europe to the brink of another economic crisis – but its problems are nothing new”, Independent, 2018. Accessed 24.11.2018:

[7]Ewing, Jack and Horowitz, Jason, “Why Italy Could Be the Epicenter of the Next Financial Crisis”, NY Times, 2018. Accessed 23.11.2018:

[8] Ibid.

[9] Ibid.

[10]Inman, Phillip, “World economy at risk of another financial crash, says IMF”, The Guardian, 2018. Accessed 24.11.2018:

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