Thread by @GoodwinMJ

Good morning from Italy -

A thread/

You might have picked up that there is a political crisis unfolding

It is really important, not only for Italy but for the Eurozone and EU more widely

So what has happened exactly and why does it matter?

You may recall that the recent election was won by the openly populist 5 Star and the hard right League

Two parties that are not liked at all in Brussels but which nonetheless were elected by the Italian people, the citizens

These parties then tried to come together to form a government, but were coming from very different ideological places

In fact, the negotiations have been so complex that more than 80 days have passed since the election

This is a post-war record for Italy

And that follows hot on the heels of recent post-election negotiations in the Netherlands and Germany which were also record-breakers in the modern era

So at broad level one thing that we are seeing in Europe that few people (outside of academics) are talking about seriously is fragmentation - more and more parties are finding it harder to work together

But anyway back to Italy

Both the populist 5 Star and hard right League had variously made Eurosceptic noises during the election campaign

Talking about the need to reform the Eurozone/EU area, perhaps write off some of Italy's debt, maybe even possibly hold a referendum on whether or not Italy should keep the euro

But they rowed back on a lot of that as the election approached or during the negotiations about how to form a government

Their joint government platform watered down some of the earlier ideas that had got Brussels/the financial markets spooked

But then it comes to the point where they have to nominate ministers and they go for an 81 year old named Paolo Savona to head up finance

An interesting choice. Savona is pretty Eurosceptic, to put it mildly. He has suggested that the euro is designed to benefit Germany and that ordinary Italians have not really gained anything from nearly 20 years of euro membership

Well, specifically, he called the euro a "German cage" and worried that Italy was about to follow Greece down the tube

Actually, in some respects the situation in Italy looks worse than in Greece now but let's stay focused on the political end

So then the President of Italy and the financial markets again get a bit spooked not only about this new populist government but also...

.... an 81 year old apparently Eurosceptic hardliner who nobody has really heard of outside of Italy but who suggested that the Germans today are basically like the Nazis in that they still want to dominate Europe and it might be good if Italy bailed out of the euro....

In steps the credit agencies

The (unelected) credit agencies and markets then start to apply pressure on Italy, warning that they will downgrade the country to near junk-status

bond spreads start to rise and financial institutions start to send their own message:

"we don't want this government"

All of this piles pressure on Italy's president who signs off on all of the other proposed ministers ... except the Eurosceptic Savona

This prompts the newly appointed Prime Minister (chosen by the two parties - an academic, bless him) to quit because he cannot form a government

And it leaves the populist 5 Star and the hard right League feeling even more frustrated with "the establishment" than they were even before the election

And I would humbly predict that in the coming months this entire episode will also leave the two (currently very popular) parties more openly (perhaps genuinely) Eurosceptic than they were to begin with

Some in 5 Star are already calling for a referendum on the euro and this episode fits their narrative about people power versus unelected institutions perfectly

Here is what the President said:

"I agreed to all ministers except the finance minister. I asked for a figure who would mean not risking an exit from the euro"

The only ministers allowed are unambiguously pro-euro ministers, apparently, which is no doubt what some voters will be thinking this morning

This is what the leader of 5 star (who has already called for the President to be impeached) has said:

"what's the point of going to vote if government's are decided by the credit agencies and the financial lobbies"

*lots of Greeks might be nodding their heads right about now*

So today the President is meeting a man called Carlo Cottarelli, a former executive director of the International Monetary Fund

To most likely see if he fancies running a technocratic/caretaker government

Talk about ruling the void

Given that this would not be Italy's first technocratic government you might argue that this should not actually be too problematic

Well, the last one (headed by Mr Monti) was not exactly popular in Italy and helped pave the way for 5 Star in the first place

So if there is a fresh election then the stage is set for a strong result for the League, which is already this morning alluding to a conspiracy, and perhaps also 5 Star, which may yet find itself moving further and further in a Eurosceptic direction

Of course, you could argue that all of this has partly been engineered by the parties (mainly League) to fuel their anti-establishment agenda (eg they could perhaps have found a more acceptable version of Savona)

But the broader point is that the markets would still have been jittery, and the government would still have been under immense pressure to play ball

It is clear, in my view at least, that there are ever-increasing tensions within the EU -as reflected in events from Greece to Brexit, from Hungary to Italy

That large numbers of voters will feel as though the democratic market place of ideas is being shut down to suit financial markets, technocrats and what often appear to be distant international institutions with no clear democratic mandate

These tensions will continue to propel the likes of 5 Star, League, etc. and their counterparts in other European democracies. The days of a permissive consensus are long gone /ends

p.s. some people I enjoy tuning into who will have own takes -> @DrAlbertazziUK @duncanmcdonnell @DrScottJames @CatherineDVries

*Here is some data on the public mood in Italy that I compiled earlier*
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