European Union (EU) and Italian national flag banners hang in central Rome Elisabetta A. Villa/Getty Images

What Italy’s Crisis Means for Europe

Though Euroskeptics have failed to form a new Italian government, both Italy and the European Union are entering a new phase of deep uncertainty. In the absence of a robust growth agenda that addresses Italy's structural economic weaknesses, another euro crisis could be in the offing – and this one would be far worse than the last.

MILAN – Since the populist Five Star Movement and the right-wing League captured a combined parliamentary majority in Italy’s March 4th election, Italian politics has been at an impasse, with the two parties struggling to form a government. But now, with President Sergio Mattarella having rejected a M5S/League proposal to appoint the staunchly Euroskeptic economist Paolo Savona as Minister of Economy and Finance, the situation has taken a dramatic turn.

Rather than explore more moderate alternatives, the coalition has abandoned negotiations and called for a new election. An attempt to form an interim technocratic administration chosen by Mattarella was followed by a clash with the populists, which could have led to a constitutional crisis and spooked the markets. Now the situation seems to have changed again, and a coalition government is back on the table. But the situation remains highly fluid – and volatile.

This is the first time in Italy’s postwar history that a coalition of parties from the political extremes has attempted to form a government without any input from centrist forces. For their part, M5S and the League represent two different, but possibly overlapping, constituencies. Whereas M5S’s stronghold is in Italy’s poorer south, the League’s is in the country’s prosperous north, where a large small-business community harbors fears of immigration, globalization, and high taxes.

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