If the law is not changed and the next Italian general election was somehow pushed ahead, the populist Five Star Movement party could gain greater influence in the Italian government. In the worst-case scenario, this could trigger an EU referendum in Italy.
Unlike, the French and the Dutch, who overwhelmingly want to remain in the euro, only 53% of Italians support the euro so the margin for error is greater, argues Bell.
“If you think the EU leaving the UK is a problem, you ain’t seen nothing yet compared with what it would be like for a large European economy to leave the eurozone,” he stated.
“The breakdown in currency would cause serious destabilisation across the region.”
However, Bell regards the likelihood of an Italian EU membership referendum as a “high impact, low probability risk.”
Either way, he says “we could know pretty early on whether the only significant risk in European politics is off the table.”
And if the storm cloud of a potential referendum passes, Bell anticipates the euro will strengthen and European equities can thrive.
“In the current climate, there are a lot of stories being written about political risk, which therefore becomes priced in to markets.
“That risk needs to come out, and then it can be positive for the euro and should be positive for European equities.”
