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Italian Prime Minister toured European capitals with great success (at least until he criticized the German Bundestag), and he managed to move stubborn Germany and other countries to support the European cause.

However, his popularity is falling in his own country. The technocrat PM is scheduled to step down in 2013, but his government may not last that long. Austerity measures are taking a heavy toll on the Italian economy.

The unemployment rate is moving higher, and too fast. It reached 10.8%. The economy shrank at an alarming rate of 0.8% and probably suffered a similar rate in Q2.

  • Unions don’t like his reforms and plan a general strike in September.
  • 10 major Italian cities risk a crash as their finances are strained.
  • In addition, Sicily is also struggling to balance its budget. Regional problems in Italy cannot be compared to Spain’s, but they add to the mess.

On this background, the anti-euro sentiment is rising. It is currently led by the anti-politicians party of Beppe Grillo, but the sentiment is growing among mainstream politicians as well.

Former Italian PM Silvio Berlusconi, who is out of office for less than a year, is already planning his comeback and also adopted some anti-euro sentiment.

The return of Berlusconi could accelerate a move to bring the elections forward to later this year. Political parties are discussing this.

Similar to Spain, Italy needs ECB money to lower its bond yields, but the political price may be too much.

This article is part of the Forex Monthly Outlook. You can download it by joining the newsletter in the form below, which appears on any article on  Forex Crunch.