Italys Newly appointed Prime Minister Giuseppe Conte, Italys Interior Minister and deputy Prime Minister Matteo Salvini, Italys Labor and Industry Minister and deputy PM Luigi Di Maio and Italys Undersecretary for Prime Minister Giancarlo Giorgetti ANDREAS SOLARO/AFP/Getty Images

Italy’s Quadruple Threat to Europe

Italy's new Five Star Movement/League government has been assuring financial markets that its intentions with respect to the euro and EU fiscal rules are pure. But soothing words will not change the fact that Italy is beset by political and economic crises that could plunge it – and Europe – into the abyss.

STANFORD – Italy’s new Minister of Economy and Finance, Giovanni Tria, has sought to reassure financial markets that the new Five Star Movement/League coalition government will neither abandon the euro nor blow up the budget deficit in violation of EU fiscal rules. But Europe is not out of the woods. Italy’s populist, Euroskeptic government has further heightened the medium-term risks posed by the country’s banking sector, public debt, labor and migration policies, and growth model.

This November will mark the 25th anniversary of the Maastricht Treaty, which transformed the European Economic Community into the European Union; and next year is the 20th anniversary of the launch of the euro. Each institution has not just survived, but expanded, despite challenges such as Greece’s sovereign-debt crisis and the United Kingdom’s decision to quit the EU. But while the eurozone has weathered these storms, a series of unresolved issues still plagues it.

In recent years, growing nationalist and anti-immigrant sentiment has given rise to populist parties willing to challenge EU rules and defy the bureaucrats in Brussels. And since the 2008 financial crisis, many European banks have been on a wobbly footing, and sovereign, corporate, and household debt levels in a number of European countries remain elevated. Though unemployment has fallen somewhat, it is still double the rate in the United States. And after a recent uptick, Europe’s overall economic growth rate has fallen once again.

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