Matteo Salvini 
Credit: European Parliament/Flickr

Wall Street is preparing for the next global recession. Reliable Saudi oil supplies are threatened, China’s domestic economy is ripe for a reckoning and American tariff wars are cranking up. The last thing the global economic system needs right now is a petulant, provocative, debt-ridden and budget-busting Italy.

The world has just gotten the last thing it needs.

Italy’s relatively new, untested, and full-on nationalist coalition government is pursuing an aggressive and expensive nativist agenda while unconvincingly promising to grow out of its economic troubles. It is in the early stages of extorting the European Union and holding the euro currency hostage. The result of the fresh Italian-led European political and economic crisis will not end well for anyone. This is a real-time stress test.

Despite all the world’s flashpoints, from Syria to North Korea, it is more likely that the next global crisis will be coming from an American ally and NATO partner nation that is the EU’s third-largest—and the world’s eighth-largest—economy in the world.

Italy’s new government, with the charismatic Deputy Prime Minister Matteo Salvini as its front man, is hard at work installing populist policies and pushing for a financial overhaul. Europe has seen this play before. Radical history repeats itself.

Recall that in 2015, Greece threw political caution to the wind and elected a rhetorically seasoned, but young and untested Alexis Tsipras as prime minister. The first and most prominent of a new wave of elected Southern European populists threatened “Grexit”—an exit from the Eurozone. Tsipras considered Greek bankruptcy and a national debt default while Greece’s finance minister advocated cranking up new money printing presses and a return to a sovereign state drachma currency. Global markets were hanging in the balance. Despite the high dudgeon and drama, Greece backed down, stuck with the euro, was saddled with usurious debt repayment terms and, to this day, is stuck in an economic depression.

Grexit is now long forgotten by all but those European leaders who were forced to spend their summer in mind-numbing meetings to keep Greece in the Eurozone. Its lessons, however, were instructive to Italy’s new leadership.

Italy’s rabble-rousing, anti-Brussels government learned a very important lesson from Greece. Salvini, who is also the country’s interior minister, saw that Greece was able to paralyze the EU body politic, cripple European policymakers, and threaten to take the whole system down.

The gambit almost worked. From Salvini’s perspective, Greece’s Prime Minister Tsipras blinked not because he wanted to give in to European demands and conditions but because he had little leverage. He also saw European and global financial actors playing for time, stretching out negotiations so markets could prepare, adjust, account, and bake in to their equity and bank share pricing any potential Grexit shock to the global financial system.

But Greece, with a population of about 11 million, is an economic pipsqueak. The problems Italy can cause are much more serious. Italy’s a big country of 60 million people. Its debt is 131 percent of GDP. It’s an industrial powerhouse and a diversified economy, producing everything from cars to clothes, food exports to steel and chemicals. By contrast, Greece relies heavily on tourism.

Salvini, as the leader of the virulently anti-immigrant Northern League party, is now following the most dangerous parts of the Grexit playbook. Instead of backing down the way Greece eventually did, Salvini is threatening to stand firm against EU pressure, leveraging Italy’s size and financial throw-weight to suggest a credible economic murder-suicide pact.

Italy voted in populist leaders earlier this year. The election results immediately brought down banking shares. The founder of the Five Star Movement, the stand-up comedian Beppe Grillo, practiced his base humor to remind everyday struggling Italians of their constant tragicomic state while growingly popular Italian political populists gave heartburn to financial markets from London to Tokyo. Grillo left the party leadership earlier this year, but his governing legacy is a bomb-throwing collective.

The Italian coalition government is relatively new to the ornate Quirinal Palace and inexperienced in running the legislative and executive show. In fact, coalition partners’ Five Star Movement and the Northern League have formed a governing collective that not only is challenging the EU status quo by keeping out and promising to kick out immigrants. It now seems also to be cozying up to Vladimir Putin. Salvini says Europe should drop Russia sanctions. Further, Salvini is now mulling an insurgent run for the European Commission presidency. In tone and threat, Salvini almost makes Greece’s young leader Tsipras look like a European elder statesman.

Italy’s populist anti-austerity measures, social service, and welfare expenditures and EU-opposed subsidies may help take down the global financial network, but some things are looking up. Flying high, in fact.

The Italian coalition government is making sure its national Italian airline is cleared for takeoff. Subsidies and state investments are relaunching Alitalia—a symbol of national pride, if not exactly a paragon of efficiency. The next-to-last thing the world needs in increasingly volatile global markets, however, may be another money-losing national airline.

Markos Kounalakis

Markos Kounalakis is a visiting fellow at the Hoover Institution. He is a former NBC Radio Moscow correspondent and the author of Freedom Isn’t Free: The Price of World Order (Anthem Press, 2022).