Staking it all in Italy

The formation of the government in Italy that has been expected since March and the ongoing ambiguity was about to near its end with PM-designate Giuseppe Conte, who was tasked by President Mattarella. In addition to this, the coalition the Five Star Movement (M5S) and League parties – that stood out in election results– agreed on is not just one of Rome’s latest issues with its far-right followers who are angry the order, but one of Brussels’ current matters as well.

Brussels, which is a strong factor behind the two parties coming together, and especially to what extent anti-euro sentiment can be applied once the government takes office, were among the most debated topics of the last few days. Hence, it wasn’t that the related parties mentioned “exit” scenarios back in the time. On a different note, the M5S-League, which recently decided on partnership, did not approach this matter in their recent joint policy declaration and had openly displayed their attitude toward ending austerity in the economy.

Government candidates, who are advocating that what was applied to date is useless and hence claim that they are going to focus on the revival of demand, are creating the concern that Italy’s economy may be seriously burdened in the market with the package they promised, while it reminded of the unpleasant Greek memories. As it is being questioned how Italy, whose debts are currently not light anyway, is going to endure an additional burden, the likelihood of this affecting the region’s economy in itself led to fear. And on top of this, when the name of former Minister Savona, who is not very fond of the euro and who, as a matter of fact, at one time described it as the “German cage,” was mentioned, the markets became completely irritated. In the atmosphere where anxious voices started to rise from Brussels as well, while Italian bonds were undergoing a negative separation, the euro lost strength against the dollar.

As a result of Savona’s profile and the reaction of markets to all that has been happening, President Mattarella vetoed his appointment the previous day. The statement that stood out was that the relevant developments put Italians at risk and hence investors were alarmed. While this provided a short breather in the markets, yesterday we witnessed prime ministerial candidate Conte resign and give up the post. After all hopes of a coalition went out the window, Mattarella tasked Carlo Cottarelli to establish a government for snap elections.

Italy’s economy, as underlined by the president as well, needs to overcome the uncertainties and instill trust fast. As it is no. 3 in the Euroregion, without a doubt, it is also important for its surroundings that it turns the country’s high public debt, which has exceeded 130 percent, into a positive story as well as its low growth that is comparatively following from behind.

Frankly, even though a euro-skeptical government withdrawing from the scenario has slightly alleviated concerns, the question of what the elections will bring is an entirely new topic of uncertainty. In this context, the likelihood of M5S-League supporters reacting to this end and rising a more populist voice, during and at the end of the campaign period, is the most concerning matter. Hence now, the world is going to watch and see: As the Italians say, will a fly become an elephant or the exact opposite?