On Monday, Italian president Sergio Mattarella refused to confirm populist party demands to instate a eurosceptic economist who previously suggested Italy leave the eurozone as the new government minister.
Instead, President Mattarella gave the mandate to form a new government to former International Monetary Fund (IMF) economist Carlo Cottarelli. The uncertainty around the formation of a functioning government by fractured coalitions in parliament revived fears of political instability and underlying economic struggles that Italy has faced for more than a decade.
On Thursday, in an act displaying efficiency and cooperation, the two major anti-establishment parties called the 5 Star Movement, and the far-right League resolved their political crisis by creating a stable coalition government with Giuseppe Conte as the new Prime Minister.
Mr. Conte was a publically little-known academic and lawyer before assuming his current role Thursday night.
Despite the country’s success forming a functioning government, the economic outlook of the nation remains in peril, and the political turmoil has refocused the global spotlight on the EU’s thirds largest economy.
On top of the concerns in the economy lies the uncertainty over what the nation with its new anti-Euro government will do about their complains about eurozone policies and leadership.
Although unlikely, the new government could issue a referendum to leave the block similar to Brexit in 2013.
The country has faced numerous economic challenges including high inflation rates, government indebtedness and high unemployment.
The country is still trying to recover from the lows of the 2008 global financial crisis.
Since 2008, the country’s debt in government bonds has consistently outweighed its GDP, while struggling to increase worker productivity and eliminate the ravages of corruption and organized crime.
When measured against the European Benchmark treasury yields, the German 10-year bonds, Italian debt is closer to American standards, meaning the government is paying more money to inject economic growth compared to their European counterparts. The question that remains is whether the new partnership between 5 Star and the League will be capable of actually governing and working together.
Although united in their skepticism of Europe, they diverge on fiscal policies one group calling for massive tax cuts while the other advocating for large-scale welfare spending. Italy has a long history of divided government and disparate coalitions.
The division between the wealthy north and the poor, underdeveloped and agrarian south have plagued the country with long delays in the creation of governing bodies and frequent reshuffling of parliament.
Despite the fears, president Mattarella stood firmly behind the new government, restating his confidence in the coalition’s ability to effectively govern.