Italy has been embroiled in a battle of wills with the European Union after Eurocrats rejected their plans to increase the country’s deficit by 2.4 percent for 2019. Brussels issued Rome with an ultimatum to change the budgetary proposal but the eurosceptic Government has so far refused to budge. The ongoing clash has sparked concerns Italy could spiral the bloc into a crisis by leaving the EU and the eurozone.
Mr Kraemer has now warned Italy poses an “existential” threat to the European Union bigger than Brexit.
Speaking to Bloomberg, the economist said: “The biggest threat to the existence of the union is not Brexit, of course, but Italy.
“Italy is too big to fail. We have a populist government who may say ‘we have the OMT programme of the ECB.’ But there are certain conditions attached to the OMT programme. For example, a country should first go to the Brussels fund, has to accept reform condition before the ECB cuts them in.”
OMT, or Outright Monetary Transaction, is a European Central Bank programme wherein the ECB can buy bonds issued by member states from secondary sovereign bond markets.
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Mr Kraemer continued: “A populist government is quite unlikely to submit to reform conditions from Brussels.
“There is a risk OMT, in the end, will not work and this explains why investors are nervous.”
Italian Economy Minister Giovanni Tria on Monday reiterated Rome is not planning to change their budget proposal but would remain at Brussels’ disposal to continued negotiations.
After describing the budget proposal as “very moderately” expansionary, Mr Tria said: “The discussion goes on.
“Obviously the plan of the government doesn’t change, but there’s the intention to carry on the discussion.”
Financial strategist Mark Grant insisted the “dire” conditions in which Italian banks are at the moment could soon trigger a withdrawal from the common currency in favour of a domestic option.
Mr Grant said: “I think Europe is about to find itself in a great deal of difficulty depending on what they do to Italy.
“It may even get to the point where Italy is going to introduce their own currency or even pull out of the European Union.
“There’s a likelihood depending upon how the rest of Europea responds. This could happen yes.”
Earlier this week deputy Prime Minister Matteo Salvini struck another blow against the bloc’s calls to edit the budget proposal as he claimed Brussels should stop bothering his Government.
Speaking to Italian Maurizio Costanzo’s Show, Mr Salvini belittled the EU on its failed attempt to help Italy’s economic growth.
He then proceeded to claim Brussels is full of “scribblers” sending his Government letters “every 15 minutes” and called on the EU to stop “breaking our b***s” on the controversial budget proposals.