The political state of the European Union (EU) has been in disarray since the United Kingdom voted to leave the single market last June. With France, Germany and the Netherlands all set for general elections this year, investors are beginning to speculate about the potential for further EU fragmentation. However, the first country after the U.K. to leave might not be any of the three mentioned. For many experts, Italy has that distinction.
For Italy, failed constitutional reforms and the resignation of Prime Minister Matteo Renzi have opened the door wide open to the anti-establishment Five Star Movement. The party, which is headed by Beppe Grillo, is primed to make big gains in the 2018 general election. Five Star’s agenda includes breaking up the EU and holding a referendum on the euro.
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Further EU disintegration in the form of a so-called ‘Quitaly’ could signal the death knell for the euro. Much like the British pound before it, the common currency would be undermined by instability and weaker foreign demand. This could threaten to diminish what little is left of its safe-haven status in the eyes of investors.
In the event that Italy left the EU, which country would be next? Just as Brexit has spurred populist uprisings across the region, Quitaly is also likely to boost momentum for Eurosceptic parties. Below we look at seven countries that may consider taking the EU exit train after a Quitaly scenario. Although the desire to quit the EU is usually economic in nature, for many far-right parties the perceived need to control immigration and preserve European identity is also high on the list.
Austria came close to electing the EU’s first far-right president in December amid the recent surge in asylum seekers to the continent. Nobert Hofer pledged to hold a Brexit-style referendum on EU membership had he prevailed in the election. Despite losing, he still garnered 46.7% of the popular vote, a sign Austrians are increasingly warming to the Eurosceptic platform.
Portugal is a country that has struggled mightily since the financial crisis. The “Departugal” catchphrase demonstrates the aspiration of some Portuguese to leave the single market. Unlike other countries, Portugal’s anti-EU parties are mainly on the left, including the Left Block, the Communists and the Greens.
The country that holds the seat of the EU is not without its Eurosceptic leanings. The phrase ‘Byegium’ emerged in mid-2016 to describe Belgian support for leaving the single market. The country’s primary Eurosceptic parties include Vlaams Beland and PVDA. Support for these parties remains thin in comparison to other Eurosceptic platforms across the region.
In Finland, “Finish” is the catch-all phrase that describes several competing desires to part ways with Brussels due to nationalism and distrust of Brussels. Finland’s Eurosceptic parties range from the Finns Party, a right-wing platform with a softer stance toward the EU, to far-left parties that seek a harder exit from the single market. These parties include the Communists and the Workers Party.
Euroscepticism is also prevalent in smaller EU states, such as Latvia. The country’s anti-EU parties are usually right-wing and ultra-nationalist in nature, such as the All for Latvia! Party and the National Alliance, which has a sizeable representation in parliament.
Euroscepticism in Greece has flourished since the financial crisis. The country has received massive bailouts from the so-called troika of lenders that include the International Monetary Fund, the European Commission and the European Central Bank. For many Greeks, pan-Europeanism has therefore come to represent painful austerity, which has allowed several far-left parties to bolster their anti-EU agenda.
While Slovakia’s Eurosceptic movement began to gather steam all the way back in 2014, the country is still viewed as one of the most ardent supporters of the EU. However, anti-EU platforms are well supported in the political spectrum, with far-right and center-right parties gaining ground. The country’s most successful Eurosceptic platforms include the center-right parties Freedom and Solidarity and We Are Family.
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The Impact of EU Disintegration on the Financial Markets
Although it’s difficult to imagine that each of these countries would carry the same weight in leaving the EU as the U.K. or Italy, the impact of regional disintegration would likely be felt throughout the world. Uncertainty is the bane of the financial markets, and a virtually non-existent EU would stoke fears of political and economic contagion, not to mention heightened nationalism that could challenge the globalization narrative. Like the pound before it, the euro would likely be the immediate casualty.
With the U.K. about to begin the Brexit process, support for devolution from Brussels will continue to grow throughout the region. A confluence of forces that include nationalism, distrust of centralized institutions and economic hardship are all making an exit from the EU more attractive by the day. It remains to be seen whether the nasty divorces will lead to greater prosperity or deeper financial ruin.
The Bottom Line
With Brexit, the seeds of EU disintegration have been sown. It remains to be seen whether Italy and half a dozen other countries follow the Brexit model or decide to remain within the soon-to-be 27-member union.
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