The high risks of leaving the euro make this policy a likely vote loser. A referendum on continued Eurozone membership is the present M5S party line. M5S leaders have claimed that the referendum threat would give Italy leverage over Germany. In reality, the referendum gambit would more likely be regarded in Germany (and elsewhere) as a Greek-style bluff. The Italian bond market would be destabilized by the announcement of such a referendum (which, for legal reasons, would probably have to be non-binding in any case). In what amounts to an implicit acknowledgement of these realities, M5S now seems to be drawn to the parallel currency idea. This "solution" looks like another mirage. We predict that the new Italian government, whatever its political stripe, will instead go down the road of unilateral violation of the Fiscal Compact.
5 Star Movement and La Liga both soften their tone on the euro and remove euro exit from their policies in January 2018. The first coalition budget expands the scale of the fiscal deficit, enrages the EU, and causes BTP 10y yields to rise to 3.58% in October 2018.