Italian President Sergio Mattarella speaks to media after a meeting with Italy's Prime Minister-designate Giuseppe Conte at the Quirinal Palace in Rome, Italy, May 27, 2018. REUTERS/Alessandro Bianchi?
Sergio Mattarella, Italy's president © Reuters

It is rare for an Italian president to exercise the veto powers vested in the office by the postwar constitution. But Sergio Mattarella was acting within his remit when he rejected the anti-establishment Five Star Movement and far-right League’s choice of finance minister on Sunday. Paolo Savona, an 81-year-old Eurosceptic who has contributed to covert plans for Italy to abandon the eurozone, posed a threat to the savings of Italian citizens, the president legitimately argued. The heavy sell-off in the markets suggests investors agree.

It is not the deployment of the presidential veto that has placed Italy on the brink of a constitutional crisis after the collapse of coalition efforts to form a government. The blame lies squarely with Italy’s triumphant populists, in their refusal to select a compromise candidate to replace Mr Savona. Those with a conspiratorial mindset believe this was always League leader Matteo Salvini’s plan: to create chaotic conditions that would eventually force a fresh election. There can be no good outcomes from this turmoil.

Neither the League nor Five Star proposed exiting the euro during their campaigns. Their programme, which included tax cuts and simultaneous spending increases under a finance minister in whom markets had little trust, risked having the same effect. It would have placed Italy in defiance of EU fiscal orthodoxy and set Rome on a collision course with Brussels. This on top of the coalition’s earlier decision to select a little known lawyer, Giuseppe Conte, as puppet prime minister.

The president may be gambling that ahead of fresh polls, the populist parties will be forced into the open with their anti-eurozone agenda. Faced with ruinous consequences, Italian voters might be scared of voting for them a second time round. Something not dissimilar happened in last year’s French elections. Far-right leader Marine Le Pen was riding high. In the event, her more cautious supporters were deterred by the National Front’s fiercely anti-EU discourse.

In Italy, however, the odds are not necessarily in Mr Mattarella’s favour. Italians are justifiably fed up with the two decades of economic stagnation that have followed their country’s entry into the eurozone. Hence they are drifting to the populist extremes on both left and right.

In his haste to appoint yet another unelected caretaker technocrat as prime minister, following the collapse of the coalition, the president has put wind in the sails of the anti-establishment parties. They had a strong mandate to form a government with a majority in both chambers of parliament. Now, with some justification, they can head towards fresh elections arguing that not only is the Italian establishment in hock to Europe — at the expense of Italian growth. They are also undermining democracy itself.

In the short term, Italy’s predicament is likely to widen divisions within the European Central Bank and stymie the risk-sharing reforms believed necessary to protect the eurozone against future turbulence. So long as the prospect of radical economic experiments stalk the eurozone’s third-largest economy, changes of the kind proposed by Emmanuel Macron, France’s president, will come to naught.

The interim government of Carlo Cottarelli is unlikely to survive long before enduring a confidence vote. Fresh elections could come as early as September. If Mr Mattarella has miscalculated and the populist parties come back from fresh polls reinforced, the next crisis could be considerably worse. For both the eurozone, and the European project as a whole, these are uncharted waters.

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