The worrying spectre of the instability of the so-called PIIGS economies is threatening the world financial order again – a decade after first becoming evident.
The world’s governments thought the crisis had passed when the Eurozone bailed out Portugal, Ireland, Italy, Greece and Spain – but now Italy is threatening to undo the good work repairing the world economy.
A constitutional crisis in Italy, triggered by coalition parties and the president facing off over the appointment of economist Paolo Savona to the Finance Ministry led President Sergio Mattarella to veto the move.
Savona was an outspoken critic of the single currency in the past – and although no party campaigned on this issue in the recent election, his views have become a sticking point.
Heading for another general election
The result was a country in political turmoil and probably heading for yet another general election in September.
Meanwhile, worries about the country’s debt have seen stock markets tumble and central banks rush to take avoiding action.
Politicians in the European Union fear the parties will campaign on an anti-single currency platform this time around – and against the single currency could lead to more turmoil in the European Union.
Brexit adds another dimension to the election as Europe has concerns that a good break-up deal for Britain would encourage other countries to leave the bloc.
Ripples upset central banks
The ripples also mean issues for the US Federal Reserve, which plans a June interest rate rise to continue the road to recovery.
To do so makes the US dollar stronger and other central banks in the Asia Pacific are already planning their own fight back to bolster their economies – including the economic powerhouses of Indonesia and China.
And what about the Bank of England? Already tackling economic uncertainty over Brexit, the last action the bank wants is to return to monetary easing.
The pressure is on Italy to head off the danger – but Italian politicians have a poor track record in managing the economy and are looking inwards rather than considering action to help those outside their borders who may be viewed as contributing to the problem.