James Galbraith has an interesting article on the American Prospect website on the new coalition in Italy and its likely policies. Not sure if I buy his argument about the economics of what the coalition is likely to do but intriguing nonetheless.
"[Their] policies aren't ideal; they won't create the jobs or the physical renewal that Italy needs. But they can be put in place quite quickly. And they will bust the headlock of austerity—testing and probably demonstrating the power of fiscal expansion to generate economic growth, at least in the short run. They do not require, nor will they necessarily lead to, the abandonment of the euro. As Italian legal experts know, the fiscal compact and debt and deficit rules are not fixed treaty obligations; they are regulations—which have been interpreted loosely in other contexts. However, the parallel currency scheme can be transformed if necessary into a euro-exit Plan B, leaving that possibility as an implicit threat in the Italian government's hands.
How will Brussels and Berlin react? So far, in comic denial. The EU budget commissioner declared that the markets would teach the Italians not to vote for populists, provoking a paroxysm of outrage. European Commission President Jean-Claude Juncker, a reliable buffoon, urged Italians to “work harder and be less corrupt” (this from the former prime minister of that tax haven, Luxembourg). If Brussels and Berlin have actual weapons to deploy short of destroying themselves, a serious risk since they hold a large share of the Italian debts, they have yet to demonstrate what they are.
In this way the Greek drama of 2015 reappears under radically different conditions. Europe then refused to budge on minimalist policy demands; a Left government was to be subdued, nothing else. But Italy is ten times larger than Greece, is a net contributor to the EU, is not under a memorandum, has a primary budget surplus which it can spend, a current account surplus as well, and a public debt which, however high, is not immediately problematic. And Italy saw what happened to Greece. So Europe now faces a government that probably cannot be subdued, in a country too big to fail. Italy may go forward with an economic plan that will be for a time more-or-less and comparatively successful, bringing benefits and popularity."
Stay tuned; should be a wild ride!