Italy is not leaving the euro, in case you were wondering.
This pronouncement came from Alfonso Bonafede, a heavyweight in the insurgent Five Star Movement (M5S) that now looks set to lead the country.
Of course, the fact that a spokesperson from what will be the governing party of the Eurozone’s third largest economy had to clarify that very point on Wednesday should set warning lights flashing on the radar of anyone who has a passing interest in the state of the single currency, the EU, or Italy itself.
The country has been struggling to form a government since the elections at the start of March resulted in chaos. The largest party, the M5S, defies categorisation. In the run-up to polling day, its manifesto included tax cuts, a guaranteed basic income for the poor, and slashing the power of the Italian legislature in a bid to implement a form of direct democracy.
After winning 32.6 per cent of the vote, it was not clear which other parties – if any – leader Luigi Di Maio (who has never held a job before becoming a politician) would be able to work with.
Enter the Northern League. Led by Matteo Salvini, the League went into the elections as part of a right-wing coalition fronted by Italy’s most infamous former Prime Minister, Silvio Berlusconi.
That alliance collapsed in the messiness of coalition talks. It’s a regional party (the clue is in the name), founded originally on the idea that the wealthy north of Italy should secede from what it sees as the fiscally irresponsible south. It is generally viewed as a far-right force, sharing many characteristics with Europe’s populist anti-EU movements, such as France’s National Front.
What do these two groups possibly have in common? Very little, apart from fierce euroscepticism, and a desire to shake things up. But for now, that seems to be enough.
Their provisional agenda, a draft of which was leaked this week, set alarm bells ringing for a country whose debt ratio is 132 per cent of GDP. The M5S got its expensive tax cuts and universal basic income, while the League got its reversal of 2011 pension reforms which raised the retirement threshold to the apparently unreasonable age of 66.
It is estimated that the plans would add an additional €80-100bn of public spending per year.
This flies in the face of the EU’s fiscal rules on indebted Eurozone countries – but that should be the least of the bloc’s worries.
The draft agreement also included demands to cancel €250bn worth of Italian debt held by the ECB, plus the renegotiation of EU treaties, particularly when it comes to austerity policies. There were even ideas for how Italy might go about leaving the euro, though this has since been denied, as evidenced by Bonafede’s reassurance this week.
Even if the parties are not quite calling for “Italexit” (or “Exitaly, as I prefer), if there’s one thing Di Maio and Salvini seem to agree on, it’s their hatred of Brussels.
Yet the markets have so far been relatively calm. True, the spread between German and Italian government bonds spiked on Wednesday, but it still only stands at around 1.5 percentage points, compared to highs of 2.1 a year ago.
In stark contrast, when Alexis Tsipras came to power in Greece with a similar agenda in 2015, the spread at one point hit 12.9.
So why aren’t we panicking?
The main thing holding it all together seems to be a feeling that, whatever Di Maio and Salvini say, they won’t actually be able to implement any of it. This entire coalition hinges on the idea that “my enemy’s enemy is my friend” – with the big enemy in this case being the EU.
That’s a shaky foundation on which to build a government.
The parties have radically different bases, with the M5S finding its strongest support in the southern regions that the League despises. While the League harks back to a form of traditional nationalistic conservatism, it is left-wing students, young people and lofty intellectuals who have been flocking to the M5S.
They appear to be bound together by their distrust of government. How this can function when they themselves are the ones in government is a mystery.
The Italians’ inability to govern is usually seen as a drawback. Now, the inefficiency built into the system may actually be the only thing keeping the markets calm. No one seriously believes that this alliance will last long enough to cause any real damage – it will either go up in flames, or fizzle out in the drudgery of compromise and pragmatism.
It is perhaps, then, not a coincidence that neither fiery leader wants to take on the headache of actually being Prime Minister.
Nonetheless, now seems an odd time to relax about the Eurozone’s second most indebted country. If the M5S and the League do defy expectations, turning on the spending taps and forcing the EU to confront the paradoxes of the single currency, things could spiral fast.
The warning lights are flashing, all right. A crisis is inevitable – the question is whether it will be for this rebellious Italian government in waiting, or for the euro.