Europe depends heavily on the economic performance of Italy – that is why Sunday's referendum matters

For many years the Common Market and EU membership worked well for Italy. It enjoyed rapid growth in the 1950s and 1960s. At the end of the 1980s GDP in Italy briefly passed that of the UK and France. But since 2000 the Italian economy has barely grown at all

Matteo Renzi is expected to resign if his reforms are rejected in Italy’s referendum (EPA)

Italy matters. It matters hugely in cultural and historical terms, for it has been the very heart of European civilisation. But it also matters for Europe now, for its success or otherwise will shape the future of the European Union. It is, for Europe, much more important than the UK.

This is why the referendum on Sunday has attracted such attention. The question on the ballot paper is whether voters approve of amending the constitution in ways that supporters believe would make the country more governable. It is not about the euro or the EU. However, in practice it has become about satisfaction with the Italian state, and more generally about Italy’s place in Europe – suggesting that Italy might be starting down some slippery path towards exiting the eurozone or indeed the EU itself.

One of the huge lessons of the past year is that, if voters are unpredictable, the consequences of their decisions are even more so. In the UK it was predicted that were the country to vote leave there would be an immediate recession. In the US, a Trump victory was predicted to lead to a slump in shares. And in Italy? Well, there have been predictions that in the event of a no vote, there would be a collapse of the banking system. It is certainly true that several large banks will require some sort of rescue funding, but rather than see this vote as a make-or-break event, here is another way of looking at the Italian situation.

This is to see what has happened in Europe since the Second World War as a continuing process of political adjustment, rather than a path to a single goal. Europe is and will remain a patchwork. There was a single vision articulated in the Treaty of Rome in 1957, and that made sense in the context of a Europe that had torn itself to bits and was then divided in half by the Iron Curtain. As the original Common Market took in more members and eventually was transformed into the present European Union, the rigidities of that original vision clashed with its members’ identities. You can understand why the new members in central and eastern Europe wanted to join, but you can also understand why the UK had a majority of voters who wished to leave.

For many years the Common Market and EU membership worked well for Italy. It enjoyed rapid growth in the 1950s and 1960s, growth that was described as the Italian economic miracle. At the end of the 1980s GDP in Italy briefly passed that of the UK and France – though there were some questions as to whether this really happened. But since 2000 the Italian economy has barely grown at all. It enjoyed a boom in the early 2000s but now is pretty much back where it was when the euro was introduced. Why?

As with most economic questions there is no single, simple answer. It has something to do with the north/south divide, though that was there during the boom years too. It has something to do with the inefficiencies of the Italian political system. Italian labour legislation protects insiders who have jobs vis-à-vis outsiders who don’t. Many of the young are outsiders. But the big change since 2000 is that Italy has had a fixed exchange rate.

Before that, if it allowed costs to rise too much the country could devalue. Since then it has not been able to do so, with the result that in many industries costs are too high to be competitive. Growth has stagnated. Too many of the well-educated young have emigrated, often to the UK. And the real value of its national debt, more than 130 per cent of GDP, is no longer whittled away by devaluation of the lira.

There is a sad irony here. The country that has topped the league table as having the most desirable lifestyle in the world finds that its people are choosing to leave it.

Whatever happens in the months ahead Italy will remain a core European country, just as the UK will remain a peripheral European country. Geography does not change. Culture does not change, or at least only slowly. But the rigid EU model will have to adapt, so that Italy is given the space to offer greater opportunities to its people. It has to make reforms but the pain of those reforms has to be eased. I don’t think it is possible at the moment to see quite how the EU will give Italy that space. Maybe there will be some form of debt pooling, maybe a common EU bank rescue scheme, maybe a two-tier euro. But unless the economic performance of Italy improves, the European project will indeed be undermined.

Whatever your views of the EU, a worried and weak Italy is bad for Europe and the world.