ROME—Italian President Sergio Mattarella has asked Carlo Cottarelli, a former International Monetary Fund official, to try to form a new government, even as the country speeds toward fresh elections that could see Italy’s commitment to the single currency put to the test.
Mr. Mattarella has tapped Mr. Cottarelli in an attempt to quell the political crisis that erupted Sunday after the president blocked the formation of a government supported by two euroskeptic, antiestablishment parties, the 5 Star Movement and the League.
The president refused to approve the parties’ pick to head the economy ministry, Paolo Savona, an 81-year-old economist who has sharply criticized the euro and likened Berlin’s dominant role in setting eurozone economic policy to wartime aggression by Nazi Germany. The president said he feared a new government with Mr. Savona as economy minister could endanger Italy’s membership in the single currency.
But even as the president asks Mr. Cottarelli to try to form a new government, the prime minister-designate is unlikely to win a vote of confidence in parliament and would remain as the head of a caretaker government only until fresh elections are called. Italians could return to the polls in the fall.
The leaders of both the 5 Star and the League left little doubt that they will conduct an electoral campaign railing against the strictures of the single currency. That could make the vote a de facto referendum on Italy’s membership in the euro.
“It won’t be an election,” said Matteo Salvini, the 45-year-old firebrand head of the hard-right League on Sunday. “It will be a referendum between Italy and those on the outside who want us to be a servile, enslaved nation on our knees.”
The reopening of the wounds of the eurozone debt crisis show that questions about the euro’s viability haven’t wholly disappeared since the 2011-12 crisis.
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European economists and policy makers have long warned that if the eurozone suffers a new existential crisis, the most likely trigger would be Italy. While the euro could have survived tiny Greece crashing out in 2015, an exit by Italy, the eurozone’s third-largest economy and one with €2.3 trillion ($2.68 billion) public sector debt, could destroy Europe’s financial system.
“With such a high debt, it is clear Italy is vulnerable,” says Lorenzo Codogno, former director general of the Italian Treasury Ministry. “It can’t afford any missteps.”
A full-blown return to the runs on Italian debt that threatened the survival of the eurozone in 2011 and 2012 isn’t visible so far. Italian 10-year bond yields spiked to 2.63% Monday. That is the highest since late 2013, although far from the peak of more than 7% in late 2011.
However, the popularity of the 5 Star and the League reflects the fact that Italian voters still blame European institutions, Germany and financial markets for the country’s downturn in the last decade.
The European Central Bank, with one eye on a skeptical Germany, demanded tight budgets and painful reforms from Italy as the price for a massive bond-buying program that convinced investors that runs on fragile eurozone countries won’t be repeated.
But continued economic pain in Italy, despite a broad recovery in Europe, has sowed doubts about the single currency. The Italian economy is 5% smaller per capita than it was in 2001, the only EU country, along with Greece, to have shrunk over that period, according to think tank Promotor. Across the EU, per capita GDP rose 18%. Youth unemployment is slightly more than 30%.
Many Italians also feel Italy’s EU partners have abandoned Rome during a migration crisis that brought more than 750,000 seaborne migrants to Italy’s shores since 2011. In a Eurobarometer survey last November, 52% of Italians said they don’t trust the EU. Other surveys, however, show little support for returning to the lira.
Lost in the debate is the reality that Italy’s economic problems are mostly homegrown, with a 20-year erosion in productivity, a cumbersome bureaucracy and a dominant small-business sector that has stifled productive investment, making Italy one of Europe’s sickest economies. According to Eurobarometer, 80% of Italians judged the state of their economy as “bad,” with only Croats and Greeks reporting worse opinions.
That has created fertile territory for antiestablishment parties, who won more than half the popular vote in March’s parliamentary elections with bold and unorthodox solutions to Italy’s problems.
The 5 Star Movement, a maverick party that has flirted with a popular referendum on Italy’s membership in the euro and has called for a root-and-branch revamp of the rules underpinning the single currency, emerged as the largest single party with 32% of the vote. The League, a hard-right nativist party that campaigned on promises to expel hundreds of thousands of illegal immigrants, won 18%.
Both parties refrained from expressly calling for Italy to abandon the single currency, in a successful bid to lure moderate voters in March. But they each have called the euro a failed project.
The League and 5 Star “are trying to say that we are genetically incompatible with the euro,” Mr. Cottarelli said in a radio interview earlier this month.
Now, with both groups still strong in the polls and with establishment parties in free fall, the 5 Star and the League may feel even bolder in criticizing the euro and the EU. If a euroskeptic government comes to power after the next vote, it may even secede from EU rules.
That could endanger the backstop the ECB has provided for the eurozone since 2012, since the ECB has been willing to intervene only to save countries that play by Europe’s rules. Moreover, the architect of that policy, Mario Draghi, is retiring as ECB president in fall 2019, and his successor might not show the same determination to ensure the survival of the single currency.
Write to Giovanni Legorano at giovanni.legorano@wsj.com and Marcus Walker at marcus.walker@wsj.com
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