ROME: Italians answered the question for themselves. By voting to fill more than half their parliament with representatives of antiestablishment, euroskeptic parties, they almost certainly dashed any realistic prospect of eurozone leaders agreeing at a June summit to a package of far-reaching changes to the way that the eurozone is managed. That would include proposals to create a common budget to be overseen by a eurozone finance minister and the creation of a common deposit guarantee scheme to underpin the entire eurozone banking system.
Proposals to create a common budget to be managed by a eurozone finance minister, or even the imminent creation of a common eurozone-wide deposit guarantee scheme to underwrite the banking system look dead on arrival. That is a blow in particular to the European Commission and to French President Emmanuel Macron, who have invested significant political capital in these plans.
True, an Italian crisis is by no means certain. Many investors have lost money betting on Italian crises in recent years and some will have done so again last week as the spread between Italian and German government bonds actually tightened. It is possible that out of the fog of the election, a new government will emerge that won’t damage a promising recovery.
The 5 Star Movement, which topped the polls with 32%, isn’t a conventional populist party and how its newly elected parliamentarians will act is unclear. The League, which won 18% of the vote, is a populist party—but it is in coalition with the mainstream center-right. The Democratic Party was heavily defeated but now holds the balance of power, and will stay in office until a new government is formed. “Italy is stable in its instability,” says one senior Italian political figure.
