New Italian elections would help decide whether that is the case. In the last elections, in March, populist parties skeptical of European institutions won a comfortable majority of seats in parliament, but included both right-wing and left-wing parties that have struggled since then to form a coalition.
If the populists maintain or expand their advantages in elections, it raises the prospect of serious friction between Italian politicians looking to increase spending and a European Commission, European Central Bank and German government that insist upon fiscal austerity as a condition for, among other things, continued E.C.B. purchases of Italian bonds.
As a result, the European Union is entering yet another perilous phase, after years of crises that started in Greece nine years ago. No one would confuse the latest events with the high drama of the eurozone crisis from 2010 to 2012. But the ultimate stakes are higher. Italy is a much more populous country than Greece, more at the core of the European Union, and with much higher public debt.
What the Markets Are Telling Us
The movements Tuesday — a spike in Italian bond yields, and drops in the euro and stocks worldwide — suggest that the risk of some calamitous outcome for Europe has risen after a weekend of political drama in Rome, but that it’s still an unlikely outcome.
So far, there are few signs of “contagion effects,” in which developments in Italy could create a self-fulfilling crisis in other countries with similar economic challenges. But Italy is the third-largest economy in the eurozone (and fourth largest in Europe, after Germany, Britain and France) and has one of the largest piles of public debt in the world. A crisis there could endanger banks and investment portfolios everywhere.