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<div class="KonaFilter image-container display-table"><div><div class="image on-image">Wikimedia CommonsThe Course of Empire Destruction by Thomas Cole</div></div></div><ul><li>Italy's political crisis has deepened over the weekend, with a fresh election in the country now a near certainty.</li><li>Many commentators now believe that the turmoil in the eurozone's third largest economy has started to pose a threat to the wider euro area.</li><li>Markets are spooked with major European assets selling off aggressively.</li><li>Business Insider looks at how Italy got to this point of deepening crisis.</li></ul>Whisper it quietly, but the eurozone may be about to plunge headlong into another crisis, as the political situation in its third largest economy, Italy, deteriorates rapidly.Almost three months after an inconclusive election left the country without a government, Italians could be headed back to the polls imminently with no end in sight to the rising crisis.Italy's political situation is notoriously complicated, so Business Insider has tried to break down exactly what's going on, and why it's all happening now.<h2>A nation in crisis</h2>The growing crisis can trace its roots all the way back to 2009, with the foundation of the Five Star Movement, which in less than a decade has grown to be the single largest party in Italian <keyword id="6358883" type="UNKNOWN" weightage="60" keywordseo="politics">politics</keyword>, winning 222 out of 630 seats in the Chamber of Deputies at March's election. The chamber is Italy's lower house of government.The party's policies don't fit neatly into the traditional left-right political spectrum, <a href="http://www.economist.com/blogs/economist-explains/2016/10/economist-explains-22">something it is keen to emphasise</a>. It is variously anti-establishment, Eurosceptic, anti-immigration and pro-green. The "Five Stars" refers to its <a href="https://www.google.co.uk/search?q=five+star+water+internet&amp;oq=five+star+water+internet&amp;aqs=chrome..69i57j0l5.3142j0j4&amp;sourceid=chrome&amp;ie=UTF-8">five flagship issues</a>: publicly owned water, sustainable (eco-friendly) transport, sustainable development, right to internet access, and environmentalism.Five Star's popularity has led it to moderate its stance on certain issues, and install a new leader, the 31-year-old Luigi Di Maio, who replaced <a href="http://uk.businessinsider.com/what-is-italy-five-star-movement-beppe-grillo-trump-farage-2016-12">Five Star's founder, comedian Beppe Grillo,</a> in October 2017.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Thomson ReutersLuigi Di Maio of the 5-Star Movement looks on as he attends a news conference in Rome</div></div></div>Such political shape shifting has allowed Five Star to grow its popularity rapidly, and put it in its current position as Italy's largest and most powerful party.However, while it emerged from March's election as the biggest party, Five Star fell well short of being able to form a government on its own. This posed problems. For several years the party said it would not be willing to enter into a coalition government or power sharing agreement with any other party. That's because much of Five Star's appeal has been based on its rejection of the country's establishment parties, which it believed to be corrupt.After becoming the biggest party in March, however, Luigi Di Maio relented, sensing the opportunity to govern the country. <a href="http://uk.businessinsider.com/italy-government-what-happening-2018-4">Over six weeks of talks with various parties followed,</a> until eventually late last week it looked as though a government would be formed by Five Star in coalition with the Lega Nord, a right wing party led by Matteo Salvini.The League, as they are often known, previously had ties to Silvio Berlusconi's Forza Italia party, but moved toward Five Star when an opportunity to govern presented itself.The League and Five Star's alliance is an uneasy one, but the parties managed to put together a program of government that removed some of the more extreme policies from both sides - like plans to leave the euro - and just about pleased President Sergio Mattarella (who must approve any programme of government) enough to govern.Late last week it seemed as though the League/Five Star alliance would be governing Italy, with <a href="http://uk.businessinsider.com/who-is-italian-prime-minister-giuseppe-conte-five-star-movement2018-5">law professor and political novice, Giuseppe Conte as prime minister.</a> Mattarella had reluctantly agreed to allow Conte to form a government, and it looked like months of deadlock were finally coming to a close.That was until Mattarella began the process of approving the coalition's appointments to key offices within government. Under Italian law, the president can reject the appointment of an elected official.<h2>Trouble with the finance minister</h2><div class="KonaFilter image-container display-table"><div><div class="image on-image">Thomson ReutersItalian President Sergio Mattarella.</div></div></div>All was going well until Mattarella got to the two parties' nomination for finance minister. The coalition had put forward Paolo Savona, a highly Eurosceptic economist and former banker who was Minister of Trade and Industry in the 1990s.Savona has frequently advocated Italy's leaving the euro, <a href="https://www.thelocal.it/20180526/paolo-savona-the-eurosceptic-at-the-heart-of-italys-standoff">describing the single currency in a recent book as a "German cage."</a> He has been highly critical of Germany in particular, saying in the book that: "Germany didn't change its idea on its role in Europe after the end of Nazism, even if it abandoned the idea of imposing itself militarily."He also claims that Italy's decision to join the euro back in the 1990s, has "halved Italians' purchasing power."Such assertions were enough for President Mattarella, a europhile, to reject Savona's appointment as head of Italy's economic and fiscal policies.<a href="http://uk.businessinsider.com/italy-government-president-blocks-cabinet-elections-2018-5/">Mattarella told reporters</a> that it's important for confidence in broader financial markets that Italy signals its intentions to remain part of the euro. "Membership of the euro is a fundamental choice for the future of our country and our young people," he said.Mattarella's rejection of Savona as finance minister means that he had rejected the entire mandate of Five Star and the League to govern. This, understandably, caused outrage from the two parties, with Luigi Di Maio calling for Mattarella's impeachment. Matteo Salvini, the League's head, stopped short of such calls, but did criticise Mattarella's decision.The rejection of the coalition left Mattarella with two choices: call another election, or attempt to appoint his own technocratic government.Mattarella sprung for the second option, and on Monday appointed former International Monetary Fund official Carlo Cottarelli as interim prime minister with a task to try and form a new government and bring order to political and constitutional turmoil.Cottarelli is likely to struggle to form a government, as he will need to have the support of at least half of the country's 630 deputies to rule with any sort of efficacy. Given that the League and Five Star account for 347 of those deputies, and will obviously not approve a Cottarelli government, it seems impossible that Italy will have a government any time soon.With no foreseeable path to a working government, it looks like the only option for Italy will be to hold another election, with the most likely outcome of that election being a strengthening of support for Five Star and the League. Indeed a poll released on Monday evening showed the League increasing its vote share by almost 5% from the election.Dutch bank ING summed up the situation, with <a href="https://think.ing.com/articles/italy-last-minute-showdown/?utm_campaign=May-28_italy-last-minute-showdown&amp;utm_medium=email&amp;utm_source=emailing_article">economist Paolo Pizzoli writing to clients</a> (emphasis ours):Should he [Cottarelli] manage to obtain the parliament confidence, he would try to have the 2019 budget approved, and resign before the end of 2018, taking the country to new elections in 1Q19. Instead, should he fail to get the parliamentary confidence, he would resign and remain in office as a caretaker for ordinary business, taking the country to new elections after August. We believe the chances of the government passing the confidence vote are extremely slim, and hold an autumn vote (in September or October) as our new base case.It is still too early to understand where the party leaders will position themselves in view of the upcoming election. Chances are that the perceived institutional wound might induce both the Northern League and the 5SM to radicalize their electoral message, but different political possibilities remain possible."His chances of succeeding are slim and elections are likely in September. Which leaves us 3-4 months of uncertainty ahead of a vote that may be seen as a referendum on Euro-membership," Kit Juckes, a strategist at Societe Generale wrote on Tuesday morning.<h2>Markets are spooked</h2>Any such vote could be disastrous given that Italy is one of the three most crucial members of the eurozone project, alongside France and Germany.Such an outcome seems to be something that senior figures in the eurozone are taking seriously. According to Yanis Varoufakis, who was Greek finance minister during the height of the country's last debt crisis, plans are being made for Italy's exit from the euro, which is being variously known as "Italexit" and "Quitaly.""I have it on good authority that the German finance ministry, the European Central Bank and every major bank and corporation have plans in place for the possible exit from the eurozone of Italy, even of Germany," <a href="https://www.theguardian.com/commentisfree/2018/may/28/italy-eurosceptic-far-right-technocrat-matarella-racist-populist?CMP=Share_AndroidApp_Gmail">Varoufakis wrote in an editorial for the Guardian newspaper.</a>Perhaps the simplest way to imagine the eurozone is as a three-legged stool. Germany, France and Italy are the legs holding up the rest of the project. Remove any one of those three pillars and the stool falls over.Simply put, if Italy goes, it's basically curtains for the euro area. This prospect has markets freaking out on Tuesday, with assets selling off sharply across a broad spectrum. <a href="http://uk.businessinsider.com/italys-political-turmoil-market-update-2018-5">Here's the full wrap from Business Insider's Australian markets team:</a><ul><li>Yields on Italy's 2-year debt rose by almost 50 basis points overnight - the biggest one-day move since 2012, at the height of the Eurozone crisis.</li><li>When European markets opened a short time ago, Italian 2-year bond yields continued to rocket higher, climbing by another 70 basis points. They are now sitting at the highest level since 2013.</li><li>Demand for safe-haven German bonds is increasing, with the yield on both 2-year and 10-year German debt falling to the lowest level this year.</li><li>Reflecting capital flows between Europe's periphery and core, the spread between German and Italian 10-year bonds yields has soared to 261 basis points, the highest level in four years.</li><li>The euro has also come under pressure, dropping below 1.16 against the US dollar for the first time in 2018.</li><li>Italy's banking index is also getting hosed, down 3.4% at a 13-month low.</li></ul>Markets do tend to be highly sensitive to euro-exit related developments, so some of Tuesday's moves may be a knee jerk reaction, but it certainly feels like a crisis is now brewing both politically and economically.Analysts at Australian investment bank Macquarie, however, urged calm for the time being."While we see near term market pressure, we do not think that events today are sufficient to derail the economic recovery (activity has been desensitised to political shocks in the past decade), suggesting that markets will soon present a buying opportunity," a team led by Ric Deverell wrote.However, Deverell and co. were clear that things could escalate. "A victory for the populist parties in a new election, while far from assured, could trigger a substantial risk-off event," they wrote. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/social-entrepreneurship-venture-capitalist-ross-baird-investing-2018-5">80% of startup money goes to 3 states - here's what one visionary is doing to help spread the wealth</a></h3> <div> </div> </div>

Everything you need to know about the Italian political crisis - which is 9 years in the making and could bring about the demise of the eurozone

<div class="KonaFilter image-container"><div class="image"><a href="https://www.mcu.usmc.mil/historydivision/MedicalWWI/Forms/DispForm.aspx?ID=1&amp;Source=https%3A%2F%2Fwww%2Emcu%2Eusmc%2Emil%2Fhistorydivision%2FMedicalWWI%2FForms%2FAllItems%2Easpx&amp;RootFolder=%2Fhistorydivision%2FMedicalWWI">U.S. Marine Corps Photo</a></div></div>
AS NEW YEAR approached a century ago, most people in the West looked forward to 1914 with optimism. The hundred years since the Battle of Waterloo had not been entirely free of disaster--there had been a horrific civil war in America, some regional scraps in Asia, the Franco-Prussian war and the occasional colonial calamity. But continental peace had prevailed. Globalisation and new technology--the telephone, the steamship, the train--had knitted the world together. John Maynard Keynes has a wonderful image of a Londoner of the time, "sipping his morning tea in bed" and ordering "the various products of the whole earth" to his door, much as he might today from Amazon--and regarding this state of affairs as "normal, certain and permanent, except in the direction of further improvement". The Londoner might well have had by his bedside table a copy of Norman Angell's "The Great Illusion", which laid out the argument that Europe's economies were so integrated that war was futile.
Yet within a year, the world was embroiled in a most horrific war. It cost 9m lives--and many times that number if you take in the various geopolitical tragedies it left in its wake, from the creation of Soviet Russia to the too-casual redrawing of Middle Eastern borders and the rise of Hitler. From being a friend of freedom, technology became an agent of brutality, slaughtering and enslaving people on a terrifying scale. Barriers shot up around the world, especially during the Great Depression of the 1930s. The globalisation that Keynes's Londoner enjoyed only really began again in 1945--or, some would argue, in the 1990s, when eastern Europe was set free and Deng Xiaoping's reforms began bearing fruit in China.
The driving force behind the catastrophe that befell the world a century ago was Germany, which was looking for an excuse for a war that would allow it to dominate Europe. Yet complacency was also to blame. Too many people, in London, Paris and elsewhere, believed that because Britain and Germany were each other's biggest trading partners after America and there was therefore no economic logic behind the conflict, war would not happen. As Keynes put it, "The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions and exclusion, which were to play the serpent to this paradise, were little more than the amusements of [the Londoner's]...daily newspaper."
<h3>Playing your role</h3>
Humanity can learn from its mistakes, as shown by the response to the economic crisis, which was shaped by a determination to avoid the mistakes that led to the Depression. The memory of the horrors unleashed a century ago makes leaders less likely to stumble into war today. So does the explosive power of a modern conflagration: the threat of a nuclear holocaust is a powerful brake on the reckless escalation that dispatched a generation of young men into the trenches.
Yet the parallels remain troubling. The United States is Britain, the superpower on the wane, unable to guarantee global security. Its main trading partner, China, plays the part of Germany, a new economic power bristling with nationalist indignation and building up its armed forces rapidly. Modern Japan is France, an ally of the retreating hegemon and a declining regional power. The parallels are not exact--China lacks the Kaiser's territorial ambitions and America's defence budget is far more impressive than imperial Britain's--but they are close enough for the world to be on its guard.
Which, by and large, it is not. The most troubling similarity between 1914 and now is complacency. Businesspeople today are like businesspeople then: too busy making money to notice the serpents flickering at the bottom of their trading screens. Politicians are playing with nationalism just as they did 100 years ago. China's leaders whip up Japanophobia, using it as cover for economic reforms, while Shinzo Abe stirs Japanese nationalism for similar reasons. India may next year elect Narendra Modi, a Hindu nationalist who refuses to atone for a pogrom against Muslims in the state he runs and who would have his finger on the button of a potential nuclear conflict with his Muslim neighbours in Pakistan. Vladimir Putin has been content to watch Syria rip itself apart. And the European Union, which came together in reaction to the bloodshed of the 20th century, is looking more fractious and riven by incipient nationalism than at any point since its formation.
<h3>I have drunk and seen the spider</h3>
Two precautions would help prevent any of these flashpoints sparking a conflagration. One is a system for minimising the threat from potential dangers. Nobody is quite clear what will happen when North Korea implodes, but America and China need to plan ahead if they are to safeguard its nuclear programme without antagonising each other. China is playing an elaborately dangerous game of "chicken" around its littoral with its neighbours. Eventually, somebody is bound to crash into somebody else--and there is as yet no system for dealing with it. A code of maritime conduct for the area is needed.
The second precaution that would make the world safer is a more active American foreign policy. Despite forging an interim nuclear agreement with Iran, Barack Obama has pulled back in the Middle East--witness his unwillingness to use force in Syria. He has also done little to bring the new emerging giants--India, Indonesia, Brazil and, above all, China--into the global system. This betrays both a lack of ambition and an ignorance of history. Thanks to its military, economic and soft power, America is still indispensable, particularly in dealing with threats like climate change and terror, which cross borders. But unless America behaves as a leader and the guarantor of the world order, it will be inviting regional powers to test their strength by bullying neighbouring countries.
The chances are that none of the world's present dangers will lead to anything that compares to the horrors of 1914. Madness, whether motivated by race, religion or tribe, usually gives ground to rational self-interest. But when it triumphs, it leads to carnage, so to assume that reason will prevail is to be culpably complacent. That is the lesson of a century ago.
Click <a href="https://subscriptions.economist.com/nwcd">here</a> to subscribe to The Economist

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