Why the euro zone and G7 may be jolted by new Italian instability

THE Tuesday deadline for Italian political parties to form a new government following last week's collapse of the previous administration expires on Tuesday, Aug 28.

This latest Italian instability, in a nation that has seen more than 60 post-war governments is unsettling international - not just domestic - audiences, given that Rome now poses perhaps the biggest threat to the euro zone.

This is because the country, a key G7 nation with the third largest euro zone economy, has the second biggest debt load in the single-currency area, at more than 130 per cent of its gross domestic product (GDP); its banking sector is under significant stress, with massive under-performing loans.

The fear is not just of potential fresh elections, with the uncertainty this would bring, but that a new administration would be weak, unstable and incapable of securing the structural reforms that the country badly needs, raising the prospect of further polit…