Does Italy Pose A Contagion Risk?


In a March 4 Italian election, the anti-establishment/Euroskeptic parties did well. Two of them, Five Star and the League attempted to form a government and name Giuseppe Conte as the new Prime Minister.

Over the weekend Italy’s President Mattarella rejected that attempt at a government and named a “caretaker” Prime Minister, a former IMF official and non-political technocrat Carlo Cottarelli, and called for new elections. This has been followed by protests and calls for impeachment of the President. From an AP story above:

The 5-Stars and League responded to Mattarella’s veto with a chorus of criticism that Italy had ceded its sovereignty to the European Union and international financial markets. Essentially, campaigning for the next election is up and running regardless of when the voting is done, promising a heavy dose of euro-skepticism and “Italians First” slogans, especially from the League. Nicola Nobile, lead economist at Oxford Economics, predicted the “the next elections could become a de facto referendum on Italy remaining in the eurozone.”

While the story of the Eurozone imploding is one which has played out fruitlessly many times before, there may be reasons to take this episode a bit more seriously.

First, in the post-Brexit/Trump world, populist movements are not to be dismissed. These movements have the support of a much larger crowd than in the past. Simply put, Mattarella’s decision is angering much more than some fringe crowd.