This radical new Italian government could blast an exit out of the euro

Incensed by uncontrolled migration and inspired by Brexit, Italy might in the future break with Brussels

In Britain, to govern is difficult. In Italy it is pointless,” said a senior Italian who called to wish me well when I became Foreign Secretary. I laughed, of course, at this charmingly honest assessment of a problem we find almost endearing: the inability of a country we generally adore to settle on any government for more than a few months. The indifference of Italians to politics seems to fit well with being the home of the best combination of food, wine, weather and style anywhere in Europe.

This week, however, the formation of the 62nd government since 1945 in Rome signals that the indifference may be over. The two parties that have just jointly nominated a prime minister – the Five Star Movement and the League – are an entirely new combination, vehemently opposed to most of the policies pursued in their own country and the rest of Europe for the past few decades.

Together, these parties won 50 per cent of the vote in the recent general election, and polls suggest they would do even better if Italians had to vote again. They have long been hostile to staying in the euro, have promised to expel hundreds of thousands of illegal immigrants and have adopted an economic programme considered crazy by conventional economists. This includes – despite Italy being far more heavily in debt than any other major European country – big tax cuts and spending increases at the same time. They have pledged to introduce lower income taxes, a universal basic income for everyone and a lower pension age.

One thing we can know for sure is that this is going to lead to a very big disappointment. Left to its own devices, the new Italian coalition would soon discover that no sensible person would lend it the money to do this and that the economy is too big for anyone to bail it out. In some countries, governments with impossible spending promises just print money to get away with in the short term, but Italy, being in the euro, can’t even do that.

And this, strangely enough, is why these apparently suicidal ideas might pay off for the coalition politically. For, long before financial markets and economic reality prevent it from carrying out its programme, Italy is going to be told by everyone else in the EU, from the German Finance Ministry to the European Commission, that this is not on. The eurozone has strict rules against big budget deficits and Italy would be breaking them.

Disappointment and anger can therefore be directed not against a new ministry in Rome but at Brussels and Berlin. It will be the EU that will be preventing Italians from receiving the benefits for which they voted – the very same EU that promised so much help with the huge flow of migrants across the Mediterranean and has then done very little. If the new political leaders want to trigger the bust-up that could lead to Italy leaving the euro, as so much earlier rhetoric from them has suggested they do, the stage will be perfectly set for it.

At the moment, the common assumption in the financial and political worlds is that the new Italian government will ultimately back down. Like the radical Greek Syriza party, it will end up toeing the line, screaming and protesting but eventually and dutifully implementing spending cuts and explaining the facts of life in a single currency to its despondent supporters. It will be a very difficult year, so it is thought, but the costs and risks of leaving the euro are so high that order will be preserved and the populists will be tamed.

I am not so sure. Talk to any Italian who is not part of the old parties or the financial elite and they are now incensed beyond measure by uncontrolled migration. As in elections in other parts of Europe and our own referendum, this then affects their attitude to everything else.

There are other key differences from what happened in Greece, too. This is a government of two large parties, jostling for position and credibility, and that will make it much harder for them to climb down than it was for the far-left Syriza party in Athens with a single leadership. Italy is also a major international economy, the third biggest in the Eurozone. When Greece was in conflict with the euro, Greece had a problem. When it is Italy, the euro has a problem. The people of bigger countries – again as British voters have shown – are more confident about taking matters into their own hands.

Most crucially of all, when Italians blame the euro for many of their problems they are actually right. Matteo Salvini, the leader of the League, might be wrong about many things but when he said in March that joining the euro had been a mistake and that it was a “bad currency” that was “destined to fail” he was spot on.

Joining the euro in 1999 imposed permanent stagnation on Italy, with a huge human cost of high unemployment and struggling businesses. It has meant no devaluation of its currency against the highly efficient German economy is possible, and made it harder to export to the rest of the world. For nearly 20 years, the economy has barely grown at all, while Germany has forged ahead. Unless Italian workers somehow become as productive as Germans, this is always going to be the case. There are formidable political obstacles to leaving the euro – such as Italy having no provision for a referendum on international treaties – but having a government that can envisage doing so is a first and vital step.

When the euro was formed, I pointed out why it would not work for countries like Italy and said it would be a burning building with no exits. This Italian government is likely to start working out how to find, create or blast open an exit. It will not do it immediately but conflict with Brussels will lead it that way. It will make a plan in secret. And for the long-term interests of its people and in the absence of radical reform of how the eurozone works, it will be right.

None of this, unfortunately, will help the UK with the complex process of negotiating Brexit. The more the EU feels threatened, the less ground it will give. But it shows our departure in its proper perspective – not a one-off event, but as the beginning of a long, slow disintegration.