Neal Kimberley

Macroscope | Italy is too big to fail, too big to bail, but euro currency investors aren’t listening

Neal Kimberley says although Italy’s Eurosceptic coalition has been stalled for now, instability remains a huge risk for the euro zone

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An actor wearing a mask depicting former Italian premier Silvio Berlusconi performs alongside three billboards in front of the colliseum in Rome after Italy’s election day in March. The billboards were in response to the right-wing coalition not winning a clear majority. Photo: AP/ Avaaz

Neal Kimberley

Published: 2:50pm, 29 May 2018Updated: 10:55pm, 29 May 2018

Markets may have been nervous about the prospect of a new and decidedly Eurosceptic government in Italy, comprised of a coalition of the anti-establishment Five Star party and the right-wing League, but just because that outcome, at least for now, seems less likely, there is no room for market complacency.

Italian President Sergio Mattarella may have stymied the creation of such a government by his rejection of Paulo Savona, a vocal critic of the euro and the European Union, as economy minister, but the decision has left Italy in political chaos and may even empower the Eurosceptic parties further.

Italian President Sergio Mattarella (centre) receives Giuseppe Conte (right), who was proposed as prime minister by the right-wing populist League and the Five Star movement, in Rome on May 27. Conte has decided not to lead what would have been western Europe's first populist government. Photo: Quirinale Press Office

“They’ve replaced a government with a majority with one that won’t obtain one,” Five Star leader Luigi Di Maio said on Sunday, referring to Mattarella’s preferred option of seeking the establishment of a technocratic government prior to new elections. A future election may anyway be only months away.

Italy matters. It will be the third-largest economy in the EU after Britain departs

There’s every possibility of an even stronger vote for a Eurosceptic coalition, whether that be between the League, already polling better than before, heading a centre-right alliance and imposing its agenda on its more moderate allies, or the League allying again with Five Star.