Italy. There is a referendum looming in Italy where the electorate will vote on the Prime Minister’s (Matteo Renzi) reform package. These reforms are targeted at the way the Italian government is run and if passed should help improve productivity and Italy’s long run potential growth rate. If Renzi fails to get these reforms through, he has promised to resign and there is the possibility if not probability of a constitutional crisis. If a Euro-sceptic party gained control of the government, Italy may well follow the UK out of the EU. This would be doubly significant as an Italexit implies Italy giving up the euro and could be the beginning of the end for the euro. Sadly, Renzi is fighting the wrong war. There is no doubt that these reforms are necessary and will help the economy in the long run. But what they won’t do is solve Italy’s short run growth problems, which are primarily caused by Italy’s membership of the euro and Germany’s short-sighted austerity policies. Most of the Eurozone economies in the southern half of Europe are still struggling following on from the euro debt crisis of 2011. Italy’s real GDP is still 8% lower than it was 8 years ago and nominal GDP has only just surpassed what it was then. They badly need a boost from the stronger economies to the north who should be pursuing a policy of domestic expansion. Unfortunately Germany is doing the exact opposite by running large government budget and current account surpluses. This has imposed deflation on the rest of the euro area, for which there is no escape for a country like Italy (or Greece for that matter). Italy is well and truly caught in a debt trap. The inevitable conclusion is that another Eurozone crisis is highly likely. The above mentioned referendum in Italy may be a catalyst, or else it could be something else. The only thing that will avert it will be a looser fiscal policy in the stronger European economies and that is unlikely.