This article appeared in Irish Examiner 1st June 2018

Following the momentous global political dislocation in 2016 that resulted in the election of Donald Trump and the UK vote to leave the EU, there was a lot of concern about the European political calendar coming into 2017.

Elections were upcoming in the Netherlands, France, and Germany, and the fear was that the anti-establishment trend could be replicated in those countries, with negative implications for the future stability of the eurozone.

Notwithstanding some weakening of Angela Merkel’s position in Germany, all three elections basically turned out reasonably good.

On top of this, the eurozone growth performance in 2017 turned out to be relatively stellar and suddenly all of the long-term doubts about the stability of the monetary union faded into distant memory.

However, over the past few weeks we have come back down to earth with a bang.

Coming into 2018, the markets and the rest of us knew there was going to be an election in Italy in March and we knew that the anti- establishment parties were performing pretty strongly in the opinion polls.

Although we all knew this, we weren’t terribly worried and the typical reaction in the markets was a shrug of the shoulders, an attitude of ‘what else would you expect from Italy?’ and a view that, as always, Italy would muddle through, as would the rest of us.

Over the past week, the Italian situation is threatening to turn into another outright crisis for the eurozone. Italy is a significant player in the eurozone and is the third largest economy.

However, its growth performance over the past couple of decades has been abysmal. It currently has an unemployment rate of 11% and at the end of 2017, its government debt-to-GDP ratio stood at 131.8%, which compares to around 68% in Ireland, and a eurozone average of 86.7%.

The European Commission has been extremely concerned about Italy for some time. Not surprisingly, the euro has come under considerable pressure, Italian bond yields have gone up, and equity markets have been given another reason to become nervous and volatile.

One positive is that the latest bout of uncertainty will just serve to postpone further the change in interest rate policy from the ECB and the weaker euro will help Irish exporters.