Italy could have snap general elections as soon as June with three of the four major parties vying for power tapping into increasing anti-euro sentiment in the country.
Formerly one of the single currency's pioneers, many Italian voters believe the euro is to blame for the country's economic downturn since its launch in 1999.
"I would say Italy are probably the most disenchanted in Europe by the single currency," Michael Hessel, political economist at Absolute Strategy Research, told CNBC on Thursday.
"The net majority think their future is better outside the European Union, although not by much… I mean, Italian voters don't trust the EU but they trust their own national institutions a lot less," he added.
Populist surge
Concerns over the future of the European Union (EU) have increased as a result of rising populism throughout the continent with several key elections ahead. The final round of the French elections takes place in May, just weeks before Italian citizens are potentially due to cast their vote, with far-right leader Marine Le Pen leading in the polls.
Opinion polls suggest Le Pen, who has campaigned to take France out of the single currency, would lose out to an establishment candidate. However, investors are increasingly anxious the wave of populism associated with the U.K.'s vote to leave the EU as well as the election of U.S. President Donald Trump could boost the electoral chances of populist candidates with anti-euro campaign pledges.
Italy's constitutional court amended aspects of its electoral law in January which raised the chances of early elections this year and ultimately made it harder for an anti-establishment party to secure power. The latest opinion polls suggest the ruling Democratic Party (PD) and Five Star Movement (5SM) are on around 30 percent of the vote, well short of the 40 percent threshold required by Italy's constitutional court to automatically form a majority.
Hessel argued that the markets seemed to underappreciate the importance of the constitutional reform as it would likely hold 5SM back should elections take place in the summer.
All things to all men
Aside from the country's ruling PD, the three anti-euro groups include populist party 5SM, center right Forza Italia and the right-wing Northern League.
"5SM are trying to be all things to all men yet their success rests on being detached from the establishment and so (having to form) a coalition would mean a loss of part of their identity," he projected.
5SM have pledged to hold a referendum on euro membership, however, Italy's legal system forbids referendums that are governed by international treaties. As a compromise, 5SM has suggested it could arrange a non-binding "consultative" ballot in an attempt to understand public opinion and potentially force through a referendum should citizens be in favor of leaving the single currency behind.
Hessel argued that even if this were to happen, a non-binding vote raises serious questions as to the legitimacy of the vote and ultimately should have no significance. However, he warned that such a vote would certainly be troubling for other EU members, especially during a time of significant political uncertainty throughout the bloc.
"Long term you can't not be worried about Italy, it's a major economy in the EU integrated among many others and so an anti-euro party in power would spook markets and other EU members," he concluded.