The next Italian crisis

For those who believe in the European project, Brexit is a headache. Italy, on the other hand, is a bloody nightmare. Its new anti-elite populist coalition government of the alt-left Five Star Movement and the radical-right League is currently set on a collision course with the EU. This could easily start a chain reaction that destroys the single currency.

The British media hardly mentioned it but on Saturday, once Jean-Claude Juncker, EU Commission president, had sent Theresa May on her way with a pat on the back, he sat down to ‘a working dinner’ with Giuseppe Conte, the Italian Prime Minister, to discuss Italy’s ‘unprecedented’ breach of EU rules on its budget.

In a bid to try to move away from austerity, Italy’s government has proposed a budget which exceeds the EU’s regulations on the amount of spending and debt within the eurozone. There is nothing especially Corbynista, or even Venezuelan, about this budget. The plan is to increase the deficit to a paltry 2.4 per cent of GDP. This, among other things, would allow Italy for the first time to provide the dole to citizens who cannot find work.

Yet the EU is not having it, and neither are the markets. Last month, the spread between German and Italian government ten-year bonds — that all-important litmus test in the eurozone — soared into the danger zone well above the 300-point mark (3 per cent).

If the spread breaks the 400-point barrier, it could be calamitous. This is what happened in the summer of 2011. It led to a palace coup in the autumn, which was orchestrated in Berlin, Paris, Brussels and Frankfurt. This ousted Silvio Berlusconi, who to this day remains Italy’s last elected prime minister.