May 28, 2018 / 8:55 AM / a month ago

Breakingviews - Political crisis exposes Italy’s euro fault line

MILAN (Reuters Breakingviews) - Political turmoil in Rome has exposed Italy’s euro fault line. President Sergio Mattarella on Sunday rejected a proposed anti-establishment government amid fears it could take the country out of the single currency. New elections will likely push euro membership to the top of the political agenda.

Anti-establishment 5-Star Movement leader Luigi Di Maio speaks to the media after a consultation with the Italian President Sergio Mattarella at the Quirinal Palace in Rome, Italy, May 21, 2018. REUTERS/Alessandro Bianchi

In a dramatic twist Mattarella – the arbiter of Italy’s complex government-forming process – refused to endorse a cabinet backed by the anti-establishment 5-Star Movement and nationalist League. The President told the nation his main objection was that the proposed economy minister, 81-year-old academic Paolo Savona, would probably lead the euro zone’s third-largest economy out of the currency union.

Mattarella is now expected to ask former International Monetary Fund official Carlo Cottarelli to form an interim government ahead of likely elections in September. 5-Star called for the president to be impeached while the League wants a speedy new vote.

There are good reasons to share Mattarella’s concerns. Savona has repeatedly argued that the euro is a German construct engineered to economically enslave Europe. Italian media say the unorthodox academic co-authored a 2015 presentation which spells out how to take the country out of the euro zone. The plan suggests secret preparations to avoid inevitable capital flight, followed by a “shock and awe” strategy. That approach is endorsed by Claudio Borghi, the League’s economic adviser, who in a pamphlet said Italy should rule on a single currency exit by decree, without holding a referendum.

Italy’s membership of the euro was not a prominent issue during the campaign leading up to the inconclusive March 4 vote. Though both 5-Star and the League share a confrontational stance towards the European Union, their position on the single currency is ambiguous. A new election would force Italy’s radical parties to make it clear where they stand and prompt a wider debate about the consequences for Italian savers and companies of leaving the euro.

Protracted uncertainty about Greece’s possible departure from the euro worsened that country’s economic crisis. In last year’s French election, Marine Le Pen’s initial opposition to the single currency undermined support for the National Front leader. Yet with anti-EU sentiment growing in Italy, it’s far from clear which side of the fault line voters will choose.

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