Italy’s Uncertainty Pushes Euro to Fore, the Last Place Europe Wants It
"What’s the Matter With Europe?"
Luigi Di Maio, leader of the populist Five Star Movement in Italy, has been sharply critical of Brussels.CreditAlessandro Di Meo/ANSA, via Associated Press
By Steven Erlanger
May 29, 2018
LISBON — Through more than two months of tough negotiations to form a government in Italy after inconclusive March elections, global financial markets remained relatively calm. Italy’s uncertainties seemed contained to Italy, and Europe’s economy kept growing.
That changed this week when Italy’s president, Sergio Mattarella, effectively blocked two populist parties from forming a government. He judged that a crucial member of their proposed cabinet was intent on having Italy abandon the euro, though they had not explicitly campaigned on that issue.
In doing so, Mr. Mattarella may have laid the groundwork for a new election, one that amounts to a referendum on the euro. The European Union and financial markets reacted with dread. On Tuesday, the Dow plunged almost 400 points, the value of the euro plummeted and the cost of borrowing for Italy shot up.
For the European Union, another Italian election would be terrifically bad timing.
[...]
But the common currency is not without its problems. The European Union plunged into the euro without having either the economic institutions to fully manage it or full political integration. Member states gave up their authority over monetary policy, often to deleterious effect at home.
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