This weekend, Italian president Sergio Mattarella vetoed Savona’s candidacy as finance minister on the basis that the choice would destabilize the markets and risk a euro exit. Mr. Savona has been a persistent critic of the euro and allegedly even authored a plan for extracting Italy from the single currency union. Under Italian law, the president has the constitutional right to block the appointment of a major official. President Mattarella’s rejection of Savona not only derailed the populists’ efforts to form their government, it also prompted calls for another election to be held in a few months.
The decision to hold new elections has rattled global financial markets because it could threaten the long-term viability of the European Union, which is facing several political fires right now. With Italy’s pro-EU and anti-EU factions at loggerheads, many fear the coming election may become a de facto referendum on Italy’s membership in the union. As the EU’s third largest economy, the outcome could be disastrous from the market’s perspective. Fears of a potential “Italexit” or “Quitaly” have triggered an aggressive selloff of major European assets, bringing back memories of 2011/2012 when one country’s crisis had the contagious effect of spilling over into other European economies . . .