The Italian national flag flies atop a clock tower ahead of the referendum on constitutional reform, in Pontassieve, Italy (Photographer: Chris Ratcliffe/Bloomberg)  

Italy's Looming Constitutional Crisis

(The Bloomberg View) -- Italian President Sergio Mattarella’s decision to veto the populist coalition’s choice of finance minister need not have pushed the country toward a constitutional crisis. If that’s where the country is now heading, the blame lies with the coalition for its refusal to compromise.

For the crucial job of finance minister, the populists, who won a parliamentary majority in elections in March, nominated Paolo Savona, an 81-year old economist of very strident opinions. He has called the euro a “German cage,” and once advocated that Italy should secretly prepare a plan to leave the euro. Savona’s appointment would probably have triggered a spike in Italian bond yields and possibly even a new financial crisis; last Friday, the 10-year bond yield hit a four-year high on the news that he was a front-runner for the job.

This risk put Mattarella in a tough spot. His role under the Constitution is not to rubber-stamp the incoming prime minister's nominees but to exercise his judgment on the suitability of the candidates. He was acting within his powers and such a veto is far from unprecedented. And it’s wrong to say he was trying to nullify the election -- the charge now leveled by the coalition. He says he suggested a plausible alternative to break the impasse: reportedly Giancarlo Giorgetti, a League senior official who holds more moderate views on the euro. That choice would have alarmed investors much less than the choice of Savona.

Instead of accepting Giorgetti, the left-populist Five Star Movement and the right-populist League are proposing new elections in the hope of drawing increased support to their side. They’re also accusing the president of exceeding his rightful authority; the Five Star Movement is even calling for his impeachment. The coalition’s refusal to go along calls into question whether its leaders, Luigi Di Maio and Matteo Salvini, wanted to form a government in the first place, and have simply seized the chance to trigger a new election.

For now, Italy’s president has asked Carlo Cottarelli, a former International Monetary Fund official, to form a government. He faces an impossible task: The Five Star Movement and the League hold a majority of seats in parliament and have said they won’t support a technocratic administration. Between now and new elections, perhaps in September, the populists are threatening in effect to campaign against the country's very system of government.

This could be Italy's most important vote since 1948, when the Christian Democrats beat the Communist Party, affirming the country’s place in Western Europe. This time, Italy’s membership in the euro zone and of the European Union itself are at stake -- questions that weren’t put squarely to voters last time. Months of continued uncertainty beckon, with the legitimacy of government called into question throughout. The populists could and should have accepted compromise. The consequences of their refusal are uncertain, but the responsibility for what follows will be theirs.

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