Italy's Political Volatility: What You Need To Know

Italian President Sergio Mattarella rejected an economic ministry nominee Sunday who would have laid groundwork for a euroskeptic government and struck at the stability of the euro.

The threat of Italy’s withdrawal from the euro is not yet neutralized, though.

Why It’s Important

The League and 5-Star Movement — previously contentious anti-establishment parties that together nominated Paolo Savona for the economic ministry post — are expected to unite in upcoming elections to advance their shared mission of Italian autonomy.

“The upcoming elections will not be political, but instead a real and true referendum … between who wants Italy to be a free country and who wants it to be servile and enslaved,” League leader Matteo Salvini said Monday. “Today Italy is not free; it is occupied financially by Germans, [the] French and eurocrats.”

If Italy, the third-largest economy in the euro zone, votes to leave the European Union and unifying currency, it would challenge the region’s cohesion and the longevity of the common currency.

The threat of such an outcome forced the euro to its 2018 nadir and catalyzed the widest gap between Italian and German 10-year bond yields in four years. iShares MSCI Italy Index (ETF) (NYSE: EWI) and the SPDR S&P 500 ETF Trust (NYSE: SPY) reacted with respective 5.7-percent and 0.7-percent dips.

What’s Next

Whether the League and 5-Star Movement elect to unite on the anti-euro platform will be seen ahead of elections in autumn or early next year.

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