European union and Italian flags breaking apart

It’s bad enough that Italy is losing its government. Especially now, when the consequences of the Ukraine war require concerted and decisive action in Europe.

Worse is likely to come, not just for Italy, but for all eurozone countries and their citizens. A new currency crisis is probably only a matter of time.

It will cause far greater damage than the Greek crisis. Italy is the third largest economy in the EU after Germany and France.

Its gross domestic product (GDP) is around ten times that of Greece. If international trust in such an important country and its economy is lost, the potential for destruction is enormous.

This danger raised concerns back in 2015, when Greece threatened to sweep Italy away. Since then, the risks have grown.

Italy was then indebted at 130 percent of its GDP, today at 150 percent. At the time, the Renzi government gave EU partners and international markets confidence that they wanted to tackle the problems. Now the willful overthrow of the respected Prime Minister Mario Draghi has led to a leap of faith. He, too, reformed too timidly. But the direction was right, the will was recognizable.

The opposite is expected for the future: a right-wing populist coalition of the Italian brothers under Giorgia Meloni – she would be the first woman to head the government –, Matteo Salvini’s Lega Nord and the aged Silvio Berlusconi’s Forza Italia. They all have a reputation for viewing the state as prey and ignoring their responsibility for Italy’s citizens and for Europe’s cohesion.

The extent of the distrust can be seen in the “spreads”, the difference in interest rates for German and Italian government bonds. It would be even greater if the ECB hadn’t announced new bailouts just in case: It wants to buy bonds from struggling euro states in order to stabilize the euro.

This is not only legally questionable. The ECB must not finance euro states indirectly. Above all, it is a moral hazard, a false incentive. She would have to push Italy’s government to reform and not encourage it to ignore interest rates and debt because the ECB will bail out the country and the euro partners will have to join in, otherwise the common currency will collapse.

Who will save the euro from Italy’s politics? The rules for the EU and the Eurozone date back to a time when everyone was trusted to play by the rules. There are no effective penalties for misconduct.

Here, too, it is time for a rethink in Berlin, Paris and Brussels. How can you hurt rule breakers so much that they choose to cooperate?