If Italy left the euro-zone, we think that its new currency would depreciate by about 30% against the euro. In the year or so following its exit, the economy would probably contract sharply, but we suspect that Italy’s medium-term prospects would be better outside the single currency area. It still seems most likely that Italy will remain a member of the euro-zone over the next couple of years. But political developments in Italy suggest that there is a risk of the country leaving the currency union. And given the significant global implications of such an event, it is certainly worth considering in more detail. Opinion polls currently give the country’s top three anti-euro parties – Five Star Movement (M5S), Northern League and Brothers of Italy – about 45% of the nation’s support.
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