Italy is close to finally getting a government but it could threaten the very existence of the eurozone

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Italy looks set to finally get a government, led by a coalition of two Eurosceptic populist parties, the Five Star Movement and the Northern League.
A leaked draft policy paper on the two parties’ plans for government showed discussions about leaving the euro.
Both parties have denied they plan to pull out of the single currency but the fact that discussions were even held is a worrying sign for the eurozone.
Italy is one of the key pillars of the project and without its full support, the euro could be on shaky ground.

After more than two months of deadlock, Italy is finally close to appointing a new government, led jointly by populist parties the Five Star Movement and the Northern League. A deal between the two is expected some time this week.

Five Star, which is the single biggest party in the Italian system, fell far short of being able to govern alone but will lead the coalition. The League will be an unofficial junior partner in what will be a ruling coalition unlike any seen in a major European economy for many years.

The coalition could, if circumstances dictate, end up pulling Italy out of the euro and threatening the stability — and possibly even existence — of the entire eurozone project.

It’s a slim possibility but one that cannot be ruled out, especially after a leaked agreement between the two sides showed discussions have taken place about Italy abandoning the single currency.

Matteo Salvini, the League’s leader, is thought to have been more forthright in his desire to abandon the eurozone, while Five Star’s 31-year-old leader, Luigi Di Maio, is a highly pragmatic leader who has shifted his political allegiances frequently.

The leaked report, published in part by the Huffington Post, shows the parties discussed a commitment to leave the euro but on Wednesday they issued a joint statement, hours after the draft was published, saying it was “old-version that has been significantly modified.”

Both parties specifically pushed back on the euro blueprint, saying they decided “not to call into question the single currency.”

Hostility to the euro

Whether or not the parties push for an exit from the euro, the fact that such a proposal almost formed a part of their plan for government is a huge moment for the eurozone.

Italy is one of the three most crucial members of the eurozone project, alongside France and Germany. Italy is the third biggest economy in the group and the largest in southern Europe.

Perhaps the simplest way to imagine the eurozone is as a three-legged stool. Germany, France and Italy are the legs holding up the rest of the project. Remove any one of those three pillars and the stool falls over.

That’s a view held by Nobel Prize-winning economist Joseph Stiglitz, who back in 2016 said that a “disastrous” political event similar to the United Kingdom’s decision to leave the European Union could trigger the collapse of the eurozone.

“I think the most likely thing is something along the lines of a political cataclysmic event like Brexit,” …read more

Source:: Business Insider


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