A New Chapter in Italy's Political Crisis

Italy's ongoing political crisis entered a new phase over the weekend after five ministers from former Prime Minister Silvio Berlusconi's center-right People of Freedom party resigned, leaving the center-left government of Prime Minister Enrico Letta in an extremely fragile situation. At this stage, early elections cannot be ruled out.

In the short term, the promise of intervention in sovereign markets by the European Central Bank will be enough to prevent the Italian political crisis from leading to an escalation of the financial crisis in the eurozone. In the long term, however, Italy's perennial crisis could lead to consequences at home — as Italians grow increasingly tired of mainstream political parties — and to financial repercussions in the currency union, since the Italian crisis could seriously test the credibility of European Central Bank policies.