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Italy’s Greek Tragedy

LONDON – The euro crisis is not yet over. After months of relative calm in the eurozone, financial markets are again gripped by uncertainty, owing to political instability in Italy and the banking crisis in Cyprus. Are the eurozone’s struggles finally becoming too much to bear?

Last month’s election plunged Italy into political deadlock. While the center-left coalition, led by Pier Luigi Bersani, won a comfortable majority in the lower house – thanks to the bonus that Italian electoral law grants to the largest coalition – it gained too few seats in the senate to govern effectively.

Having ruled out a grand coalition with either the anti-establishment Five Star Movement or former Prime Minister Silvio Berlusconi’s center-right party, Bersani will depend on senators’ willingness to support specific measures. But this approach is inefficient and unstable.

As a result, Italy – and the European Union – is headed toward the kind of political and financial turmoil that followed Greece’s general election last May, when a similar failure to produce a parliamentary majority forced another election the following month. The crisis in Cyprus – which threatens to cause the country’s banking system to collapse and force Cyprus out of the eurozone – could make the situation even more difficult to manage.