Nearly a decade after a protracted Greek debt crisis spooked global markets, a fresh round of political turmoil in Italy has revived fears about the fate of the European financial system and its common currency.
This time, the numbers are a lot bigger.
"Italy's economy is 10 times larger than that of Greece, whose debt crisis shook the euro area's foundations," wrote Desmond Lachman, a resident fellow at the American Enterprise Institute, in a recent blog post. "The single currency is unlikely to survive in its present form if Italy were forced to exit that monetary arrangement."
Italy's economy has been struggling since the Great Recession years with a debt load that rivals the heavy Greek borrowing that forced massive cuts in public services there and drove Greece into a deep recession. That Italian debt crisis has become central to the ongoing political instability, as multiple governments have failed to resolve it.
The latest political crisis was sparked over the weekend, after interim Prime Minister Carlo Cottarelli failed to win enough support from major political parties for even a stop-gap government. The country has been trying to form a new government since March; the latest deadlock could force President Sergio Mattarella back to parliament in the coming days and send Italians back to the polls as early as July 29.
Italy's central bank warned on Tuesday the nation was only "a few short steps" from losing investors' confidence, as financial markets suffered the biggest sell-off in years on fears that new elections could become a proxy vote on Italian membership in the euro.
In the U.S., President Donald Trump hasn't commented on the crisis. But some observers say his administration's recent move to impose steep tariffs on European aluminum and steel will only make matters worse.
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