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Italy has the third largest economy in the European Union. Italy has been a part of the European unity movement since its very start. Yet, Italy itself may represent the very contradiction that might ultimately bring the EU to its knees.

And, this is something we, in the United States, should be very interested in and be watching closely.

A breaking apart of the European Union would have very serious consequences for the health of the US economy. It is definitely in the best interests of the United States to have a well-working, well-functioning European Union. The United States stands to lose a lot if the EU fails, even partially.

The European Union is a federation of many separate, independent nations. This has always been one of the major concerns about the future of the community. Experts, right from the start, argued that for the EU to have a common currency, it also needed a common government. Yet, a common government was never formed and, in its current state, it would appear that the European Union forming a common government is even more of a dream than ever before.

One of the biggest political movements in the EU today is that of nationalization, the idea that the focus of a nation should be on its own issues and worries and that country's need to return its efforts to resolving internal problems. And, with all the elections taking place in the EU this year, the idea of national focus has grown in attention and popularity.

The major proponent of this is the Netherlands did not win the election, but the person who did take up the strategy of taking over some of the "populist" strains of the Mr. Wilders, the right-wing candidate, in order to hold off voter surge in this direction.

Now, there is an election going on in France, and the right-wing leader Marine Le Pen is causing a lot of people to lose sleep over the possibility that France could possibly move in this direction.

Then, there is a German election in the early fall of this year and the candidate focusing upon national sovereignty has been getting a lot of attention although it appears as if his chances of winning are quite low. The point is, however, that even Germany is not immune to this move.

Then, there is Italy. Italy must have an election before February 2018. And, right now, the person leading all the candidates is Beppe Grillo, the comedian leading the Five Star Movement, an organization that wants to leave the Euro and the European Union.

But, Italy, internally, is a representation of what the European Union faces. It is a very regionalized country with a very decentralized national government. A lot of its political strength lies in regional or local governing bodies. People in Italy get phrenic when there is a discussion about a strong central government.

The Italians had their strong central government under Mussolini in the 1930s and 1940s, and built their post-World War II governmental structure on the basis of making the central government as weak as they could. This regionalization has dominated Italian politics ever since.

And, this fear of centralized government is still permeating the country and dominating what is going on there.

This fear of a strong central government resulted in the resignation of former Prime Minister Matteo Renzi and, among other things, is causing divisions within his own party that is blocking the way to his return to power.

It would not be unusual for Mr. Renzi to return to power. Italy is notorious for having many governments, with many of the same leaders going in and out of power. For example, just since November 2011, there have been four prime ministers, not because of popular elections, but because of financial emergencies, factional squabbles, party coups, and failed constitutional reform.

This is not unusual despite having one of the most vibrant economies in Europe in the late 1950s and 1960s, from June 1945 through December 1970, there were 28 governments formed in Italy with an average life of 11 months. The general reason for changes was that party factions were discontented, disappointed that they did not get what they wanted, and so pulled out of the coalition.

Italy is in the midst of troubles right now with problems that are being attributed to the fact that Italy cannot respond to its own needs because of having to adhere to the strictures of the European Union. Tony Barber writes in the Financial Times that "Italy is Falling Out of Love with Europe."

The most disturbing thing that Italians are facing right now is that its economy is the slowest growing economy in the eurozone. "Public debt is more than 132 percent of gross domestic product, unemployment is almost 12 percent, and the youth jobless rate is over 37 percent."

The banking system is in dire straits as are many local governing bodies throughout Italy.

Many Italians associate this dilemma along with an even longer-term stagnation with its membership in the EU. Mr. Barber writes "many Italians see the Euro as a straitjacket."

"As a consequence, even more Italian politicians question the merits of eurozone membership. So do Italian voters. In a Eurobarometer poll published in December, 47 percent called the Euro 'a bad thing' for their country and only 41 percent 'a good thing.'"

This is why Mr. Grillo and the Five Star Movement seem to be doing so well these days. They are tapping into the basic Italian discontent with centralized government. Historically, the Italians seem to like smaller, more independent governmental bodies that can reflect and deal with local problems. This is why they constantly seem to vote against reform.

But, Italy is a part of the European Union and what it decides to do can have major repercussions not only on the eurozone itself but on the rest of the world, especially on the United States that is closely integrated with the EU.

Also, Italy is a prime example of what can happen when regional and local issues can override national, or larger, governing bodies. The United States has shown how regional and local issues can be incorporated within a larger, federal body of states, and still produce exceptional outcomes. Regional and local issues still can be problematic, but, ultimately, the benefits from union can overcome the loss of independent control.

Europe is not there, yet. It does not have a central, federal government and hence has problems in achieving the scale of operations that are necessary to be competitive in today's world. And, it seems as if it is a long way from getting there.

That is a long-run issue for now. The current problem is keeping the European Union together and avoiding an Italian withdrawal. In spite of everything else going on in the United States, businesses and investors need to keep watching what is going on in Europe because if some state, like Italy, leaves the community, global markets will suffer.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Italy's Future And The Future Of The European Union: Is The U.S. ... - Seeking Alpha