The euro and Italian stocks both rose in early morning trading Monday, due to the latest twist in Italy’s tumultuous political saga. However, with the country looking ever more unstable and probably heading for fresh elections, the trend may be short-lived—while the Italian stock market rose by 1.9% at one point, it went into the red a couple hours later.
The cause of all this volatility? A successful move by the Italian president to push back against populist and euroskeptic forces, leading to the last-minute downfall of their plans to form a government.
Following a general election in early March, the two parties with the most votes—the populist 5Star Movement and far-right League—slowly worked out the terms of a coalition. Then they designated a prime minister: Giuseppe Conte, a little known academic.
At the end of last week, Conte went to the Italian president, Sergio Mattarella, with the list of ministers he wanted in his new government. The head of state, who is pro-European, accepted everyone except for Conte’s choice of finance minister, an 81-year-old former industry minister names Paolo Savona, who has previously derided the euro as a German plot to control Europe.
With his choice rebuffed by Mattarella, Conte suddenly resigned as prime minister-designate on Sunday. The 5Star and League leaders, Luigi Di Maio and Matteo Salvini, demanded that Mattarella call fresh elections, and Di Maio has called for the president’s impeachment.
The elections are expected to go ahead in the fall—already, this is the longest time since the Second World War that Italy has gone without a government. In the meantime, Mattarella has reportedly asked a former International Monetary Fund (IMF) official, Carlo Cottarelli, to discuss the formation of an interim, technocratic government.
The markets initially reacted relatively positively to these latest developments. At one point, the Borsa Italiana had risen by 1.9%. However, at the time of writing on Monday morning (5 a.m. Eastern Time,) the Milan exchange was down 0.2% on the day.
The euro is currently at $1.168, having hit a 6.5-month low of $1.165 on Friday. At one point, it was up 0.7% in Monday’s currency trading.
As Goldman Sachs economist Silvia Ardagna put it to the Financial Times: “On the one hand, a government that could have been perceived by financial markets as calling into question the participation of Italy in the European Union and its membership in the euro area has not been formed. On the other hand, potential new elections, most likely in October, would unlikely be seen as a positive development for the Italian economy either.”
