On Sunday Italy’s President Sergio Mattarella refused to endorse Eurosceptic Paolo Savona for finance minister.
Savona was the nomination of coalition partners, the Five Star Movement (M5S) and right-wing party the League.
Mattarella then rubbed salt in the wound with an invite to former IMF official Carlo Cottarelli to form a government. The reaction from the M5S/League coalition was fury.
M5S’ leader, Luigi Di Maio, threatened the president with impeachment. The League and Democratic Party (PD) called for fresh elections.
The political fallout soon spread beyond Italy.
Market shock waves
The real risk of fresh elections becoming a proxy referendum on Euro membership sent shock waves through world markets.
However, overnight reports from Italian media also show signs of political leaders rowing back from their weekend positions.
Containing the fallout
M5S leader Di Maio is reported withdrawing his call for the impeachment of president Mattarella, citing lack of support from the League.
There is talk of a M5S/League coalition minus Paolo Savona, instead proposing the League’s Giancarlo Giorgetti.
Events seem to be pushing the M5S/League coalition’s leaders to contain the fallout.
The problem is that Mattarella (with tacit support of the EU) refusing Paolo Savona’s appointment, placed a red line where it shouldn’t have been and ended up poking a hornets nest.
The consequence are that events have taken on an unpredictable life of their own.
Pressure on the Euro
Mark’s chart illustrates the pressure on the Euro of the most likely outcome being fresh elections between July and September.
The unpleasant shock of the UK’s Brexit result is still fresh, the Italian crisis is a painful reminder of the Euro’s vulnerability…
Gary Hollands – Geopolitical analyst Tyga FX