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Luigi Bonatti, of the University of Trento, also tipped Matteo Salvini to win the country’s next general election, suggesting the leader of the right-wing Lega party would then effectively seek to hold the rest of the bloc to ransom. Mr Bonatti and colleague Andrea Fracasso outlined their concerns in a new paper published by the EconPol think tank yesterday entitled The Covid-19 Crisis, Italy and Ms Merkel’s Turnaround: Will the EU ever be the same again?
The report analyses the EU’s £677billion coronavirus rescue plan and £1.2billion budget aimed at mitigating the impact of the pandemic, which they say amounts to a form of debt mutualisation – something which goes against the bloc’s long-held principles.
Mr Bonatti told Express.co.uk the main concern among the so-called Frugal Four (the Netherlands, Denmark, Sweden and Austria), as well as within Germany, was that the measures agreed by the European Council in June could be used to bankroll high levels of public spending in countries in southern Europe, with the cost spread across EU member states.
This created a serious problem from the eurozone, Mr Bonatti said.
He explained: “Once the COVID-19 emergency is over, the Frugal Four and Germany will not accept for long a situation where they are the net payers to the benefit of the Mediterranean countries.
“Because in this way the latter will never adjust their economies and foster their competitiveness and growth potential.
“First of all, in a long-term perspective, the Italian situation is worse than the Spanish one because Italy – different to Spain – has been stagnating since the late 1990s, it has a higher public debt, and it has three aggressive populist parties controlling 55 percent of the voters.
“If the ECB will have, in 2022, to start raising interest rates and reducing its purchases of sovereign debt, it is very possible that Italy will be in serious trouble and in need of a bail out.
“The Frugal Four and Germany may not accept this, but this could lead to the eurozone’s implosion.”
The deteriorating situation played into the hands of Mr Salvini electorally, Mr Bonatti suggested.
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He added: “If there was general election right now, polls show that a coalition dominated by Salvini and the post-Fascist Brothers of Italy would probably win.
“Provided that the future is very uncertain and any forecast can be falsified, I think that with the economic pain that will follow the pandemic, this coalition is likely to become stronger.
“They will aggressively negotiate the possibility for Italy to have large public deficit thanks to the ECB’s support, threatening to default on its debt towards the EU institutions and partner countries.
“Financial market will obviously react to this possibility, with the Italian government scapegoating its EU partners.
“This situation can be potentially explosive for the eurozone.”
The eurozone, which is officially called the euro area, is the monetary union of the European Union, consisting of 19 member states which have adopted the euro as their sole legal tender.
Speaking last week, former Brexit Party MEP Rupert Lowe told Express.co.uk: “When I stood for the Referendum Party in 1997 I was absolutely convinced that we had to keep the pound.
“I believed that that was the right decision and it has been proved to be right by the passage of time.
“All the same people who were saying we had to remain in the European Union were saying we had to sign up for the euro.
“One thing I am absolutely certain of is that the euro will descend into smoking heap of rubble at some stage.
“The euro is a function of this unaccountable political post-war experiment and ultimately it is delivering misery to all the peripheral nations while delivering nirvana to Germany and the northern bloc.
“Ultimately they are trading with an undervalued currency whereas Italy, Greece, Spain and Portugal are trading with an overvalued currency.”
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