‘Euro currency under threat’

The Five Star Movement in Italy, as well as the National Front in France, are clearly Euroskeptic, said economist Felix Moreno. If these two major EU countries were for a direct exit from the euro, it would be a grave threat to the currency, he added.

Changes in politics are taking place within the EU. The French Prime Minister Manuel Valls has resigned so he can make a bid for the presidency next year. Valls still has to win the party ticket in the primaries in January.

The rejection of mainstream politicians is also happening in Italy. Prime Minister Matteo Renzi is to step down, after losing a referendum that was supposed to make passing reforms easier. Two Euroskeptic parties Lega Nord and the Five Star Movement are now vying to take control.

RT: The euro fell to a 20-month low against the dollar when the referendum result came, though it's since bounced back. Why did it react like that? Is the currency unstable?

Felix Moreno: The euro is under significant threat, not only by what is happening in Italy, but also obviously by the implications of Brexit, and also by the French elections, and what could come out of that. Not only in Movimento 5 Stelle [Five Star Movement] in Italy clearly and explicitly Euroskeptic so is Marine Le Pen. If Italy and France – two of the core countries of the eurozone were to start working against the EU, or for a direct exit from the euro, obviously the threat to this currency would be grave.

RT: There are also elections coming in Germany. That could be another threat to the euro as well, couldn’t it?

FM: The expected upset in the German elections would be, for example, the growth of the Alternative für Deutschland [Alternative for Germany,] the Euroskeptic party. But even the most optimistic polls for them don’t give them more than 15 to 20 percent. So they could topple [Angela] Merkel’s government, but they wouldn’t be able to change things. But in Italy Movimento 5 Stelle is the leading party in the polls. They could win. In France, as well, Maine Le Pen is also leading in the polls. There is a potential for an upset in Germany. In these two countries – in France and Italy – the upset could topple the government, and bring to power parties who want to exit the euro.

RT: It's unclear at this point when Italy will get a new parliament. What does that mean for Italian banks?

FM: Yes. Italian banks are crashing. They need a bailout. The rules in place since January 1, 2016 forbid the bailing out of banks in the eurozone, if there is no bail-in of depositors and bondholders first. However, in Italy bonds of Italian banks are spread very widely among the population. So it would provoke a huge outcry from the Italian public if bondholders were to take a hit. Many small time savers would lose their savings if Italian banks were bailed in, and this would lessen confidence in the euro and the European Central Bank [ECB] even more. So right now Mario Monti is not thinking about what he is doing next, he is going to [Mario] Draghi and begging for a bailout of the Italian banks.

RT: Is that bailout going to come to the Italian banks?

FM: The new rules in place since January 1 forbid it. There can be no bailout without bail-in first. No public funds can be devoted to rescuing the banks if the bondholders, the depositors, and all the stockholders in the banks have first paid their part and assumed their risk. That is completely politically untenable in Italy. So we’ll see: either the ECB will break its own rules, and the EU will show that the rules that they put in place after the last few bailouts are meaningless, or they will enforce the rules and we will see another Cyprus.