While almost half of Italians polled regard the euro as "bad" for their country, saying goodbye to the common currency could have damaging consequences for an economy.
Withdrawing from the euro area could automatically trigger a country's default, Moody's warned in a research note on Tuesday. As a result, the government's credit rating would also come under pressure.
Italy, the country with the second-largest debt burden in Europe, is set to hold general elections later this year or the next, amid rising support for anti-euro parties. Though Moody's believes that the risk of Italy exiting the euro is "very low" due to parliamentary and constitutional proceedings, it cannot be ruled out and as result neither can the risk of an Italian default.
"If the series of events outlined above were to transpire, the outcome might well be what we would regard as a default by the Italian government," Moody's said in the note.
"We assume that if Italy were to withdraw from the euro area then the government's liabilities would be redenominated into a new currency," the credit rating agency said as the most likely scenario. "A currency redenomination would be classified as a default event if it resulted in holders of redenominated securities being unable to receive or acquire the sum originally promised in a timely manner," Moody's explained.
An Italian default would have far reaching consequences and would bring into question the euro's credibility.
"Italy's decision to withdraw from the euro would potentially be a severe credit event for other members of the monetary union," Moody's said. This is because the euro was designed to be an "irreversible currency" – meaning that once a member joins, it is set to keep that currency forever.
"Evidence that it was not an irreversible currency union would damage confidence in its resilience," Moody's said.