Germany does not have a government, though the election was more than three months ago. Spain, Portugal, and Ireland have minority government. Austria is the first government since the financial crisis to include the populist right. The EU is trying to press Visegrad group of central European countries to conform to the values of Western European members. And yet it is Italian politics and the election on March 4 that is drawing attention.

Investors do not seem to care much about political developments provided they are local and do not pose systemic risk. Italy may pose such risk, the argument goes, because the largest parties want to ditch the euro. Perhaps learning a lesson from Greece’s experience, the Italian politicians are more circumspect. 

Still, the Five Star Movement, which is polling first in surveys, has pledged a referendum on the euro if Brussels does not change its fiscal rules. There is little chance that the Stability and Growth Pact will be abandoned at the request of the second largest debtor in the bloc.Moreover, as EU and ECB officials have pointed out, there is some fiscal flexibility built into the rules.

Berlusoni’s Forza Italia and Salvini’s Northern League are critical of the EU and EMU, but rather than jettison the euro, they talk about having a parallel currency. Of course, investors have to take the rhetoric seriously, but that is what it is- posturing. First, unlike Greece or the UK for that matter, Italy cannot have referendums on treaties. Therefore, to hold a referendum on EU or EMU would require a change in the Italian constitution, which is designed to be difficult to do.

Second, as Draghi made clear at a recent press conference when asked about Estonia’s desire to have a digital currency, there is only one legal currency in the EMU and that is the euro. The introduction of a parallel currency in Italy is a non-starter, though will not stop some politicians from talking about it.