Voters in Austria and Italy head to the polls tomorrow and could plunge the EU into a political and economic crisis, as I say in The Sun today. In Austria, the candidate of a genuinely far-right party—its first leader was a former SS officer—could become president. If the Freedom Party’s Norbert Hofer does win, and the race is too close to predict with any confidence, it’d show that the very extremist forces that the European project was meant to crush are now on the rise—and in part, because of the EU’s own failings.
But it is the Italian referendum that could have the more immediate consequences. Italy bans polls just before votes, so we don’t have any up to date polling. But before the polling blackout started, surveys consistently showed that the voters would reject Prime Minister Matteo Renzi’s proposed constitutional change. If that happens, Renzi has repeatedly said he would resign.
A referendum defeat and a Renzi resignation would reinforce the view in the markets that Italy is unreformable. This will heap pressure on Italy’s already struggling banking system, it has close to a third of the Eurozone’s bad loans.
If Italian banks get into ever deeper trouble, that could trigger a Eurozone crisis. Equally, if Renzi resigns and early elections are held next year, there is a chance that the anti-Euro Five Star Movement could end up coming to power. The election of the Eurozone’s first anti single currency government would call into question the whole future of the currency union.
If Italy votes no, it will have knock on effects for Brexit. London is the de facto banking and financial capital of the Eurozone. If the single currency is under pressure, then EU leaders will be wary of erecting barriers between it and its financial and banking capital. This could lead to a better deal than expected for UK financial services.