The worries came after Italian President Sergio Mattarella on Sunday blocked an academic who once called Italy’s adoption of the euro a “historic error” from becoming finance minister. That appeared to blow up a coalition deal between two populist parties that have been seeking to form a government since Italy’s March elections.
Now, backlash to Mattarella’s move may deliver the opposite of what he intended when he said he was defending Europe and Italy’s constitution.
If fresh elections are required, furious Italians could be expected to vote in even greater numbers for the same anti-establishment politicians who nominated the euroskeptic minister in the first place. Only this time, those leaders may make a fight with Brussels the centerpiece of their campaign, targeting the euro and the European rules that tightly restrict how governments spend their money.
The uncertainty sparked a global sell-off, pummeling Asian stocks Wednesday as European and American markets recovered from a slump a day earlier. Italian-government borrowing costs jumped the most in two decades.
Any crisis could quickly outpace previous ones: When Greece nearly left the euro in 2015, it also set off global economic tumult. Italy’s economy, the fourth largest in the European Union, is nearly 10 times that of Greece, and Rome is heavily indebted to creditors around the world.
“You can do serious damage. Nobody can ignore that,” said Wolfango Piccoli, the co-president of Teneo Intelligence, a political-risk analysis firm. “The drivers that took us here — migration, security, economic insecurity — they are drivers that have been with us for some time, and nobody will be able to tackle them any time soon. So this tide will continue.”
Italy’s turmoil comes as other European bulwarks are shaking loose. German Chancellor Angela Merkel, a European rock since 2005, needed six months to pull together a governing coalition after being damaged by an insurgent far-right party in elections last year. French President Emmanuel Macron trounced anti-E.U. populists to win office but is now facing anger from voters as he tries to loosen worker protections. Spain, led by the same center-right government since 2011, might have a no-confidence vote as early as this week followed by fresh elections. In Hungary, far-right Prime Minister Viktor Orban won more power in an election observers criticized as unfair and now says his plan is to remake the European Union in his “illiberal” model.
On top of all that are the economic uncertainties related to President Trump. Barring a reprieve from the White House, tariffs on U.S. imports of European steel and aluminum are set to start Friday, raising the prospect of a transatlantic trade war. Trump’s pullout from the Iran nuclear deal has set off European fears of a nuclear arms race in the Middle East, which also unsettles markets.
Together, the shifts have pro-Brussels Europeans worried about what comes next.
“All these hopes we expressed in 2017 were too positive, went beyond what was realistic and doable and achievable,” said Janis Emmanouilidis, the director of studies at the European Policy Centre, a Brussels think tank with close ties to E.U. policymakers. “The scars of what has happened over the last seven or eight years in Europe can easily reopen, and the fears are these scars become big new wounds.”
Pro-European leaders and investors had been mostly calm in the months since being surprised by Italian voters’ outsize support for insurgent parties in March 4 elections. Their first wager was that establishment parties would hem in the populists in any coalition. When the populists looked to ally with each other, Europe’s next bet was they would temper their rhetoric in the name of balancing disagreements among themselves and winning concessions from Brussels.
That thinking held until Sunday, when Mattarella exercised his constitutional power to bar the anti-euro Paolo Savona, 81, from the post of finance minister, in the name of preserving Italy’s economic stability. Neither of the two parties — the populist Five Star Movement and the anti-immigrant League — made quitting the euro part of their election campaign, but both embraced the idea in the past.
Italians support staying with the euro, and Mattarella appears to be gambling that if new elections are held, the populists could be forced to more clearly articulate their plans for the currency. In the meantime, he proposed Carlo Cottarelli, a former senior official at the International Monetary Fund known as “Mr. Scissors” for his spending cuts, as head of a technocratic government. Whether or not his government can pass a confidence vote, the stage would be set for fresh elections — unless the Five Star Movement and the League can somehow resurrect their deal.
Mattarella’s move was in some ways an ideal foil for the populist parties, which have made taking on establishment stalwarts like him a primary part of their appeal to voters.
The League has done especially well in the months since the election, increasing its share of support to nearly 28 percent in one recent opinion poll, after winning 17 percent in March. Analysts say League leader Matteo Salvini may be using the dispute over Savona to force new elections and flip the tables on the Five Star Movement, which is the senior partner in the coalition.
The political maneuvering continued Wednesday, as Salvini and Five Star leader Luigi di Maio appeared to take one more stab at forming a coalition. Di Maio, whose party has slumped in support since March, said he was ready to make a deal and would seek to renegotiate E.U. rules with Brussels.
Salvini, the sometimes-ally-sometimes-foe, made clear that he was eager to lock in his gains at the ballot box.
“This is my appeal: Sergio Mattarella should give us a day for the vote, and the Italians will do justice for what happened,” he said in Pisa on Wednesday.
Some analysts said that even if the insurgents ultimately take power, there are probably still limits on the extent to which they would upend markets. Much of Italy’s government debt is held by Italians, making it politically unpalatable to stop repaying it. If the country left the euro, Italians’ savings would probably evaporate from their bank accounts — an unattractive option for leaders who will need to face voters. And over years of economic crisis, Brussels has become skilled at going to the brink but coming up with compromise when big countries demand it.
That calculation appeared to be why markets were recovering on Wednesday following the Tuesday sell-off.
European budget commissioner Günther Oettinger suggested Tuesday that financial turmoil in the coming weeks could “be a possible signal for voters not to choose populists from the left and right.”
The chiding from a bureaucrat in Brussels was a political gift to the insurgents.
“These people treat Italy as a summer colony where they come and spend their vacation,” di Maio wrote on Twitter. “But in a few months, a government of change will be born, and Europe will finally respect us.”
Oettinger was quickly forced to apologize. European Council President Donald Tusk issued the Twitter equivalent of a facepalm: “My appeal to all EU institutions: please respect the voters. We are there to serve them, not to lecture them.”
Stefano Pitrelli in Rome contributed to this report.