Before I say anything: regular readers know that I think the root problem of the Euro are the long-standing mercantile policies of Germany (and my native) the Netherlands, which privilege growing exports at the expense of growing income of ordinary citizens/workers. This is combined with exaggerated state support of the local financial system (often partially owned and directed by the government). Unfortunately, these mercantile policies have encouraged the flourishing of a moralized public sphere in which the lack of competitiveness of other countries is used as evidence of the moral (and political etc.) inferiority of our trading/political partners.
This brings me to Italy. But before I get to that, first Greece.
The Greeks did not leave the Euro for four reasons: first, during the height of the crisis, no European leader wanted to go down in the history books as the person responsible for breaking up the Euro [I was repeatedly told this by folk close to the negotiations]; second, too many Greek decision-makers prefer income in Euros--leaving the Euro would de facto mean a loss of purchasing power of 30-50% for all folk connected to the Greek state;* third, EU/EURO membership are seen within Greece as part of a modernization project in a country that was plagued by (unfinished) civil war(s), dictatorship, and economic underdevelopment;** fourth, because Greece is a relatively small economy, the problems of it -- while horrible for ordinary Greek citizens -- are manageable to the financial system. Fifth (okay I promised four, I lied), the Greek situation was made more complex by the situation in Cyprus,+ which is both divided (or under partial occupation by the now very much unloved Turks) and whose bankrupt banks were seen as rather permissive of Russian laundering.
As an aside, and on the third reason, debates over Greece from folks like me (pundits, journalists, intellectuals, etc.) often get tangled up by debates over austerity and neoliberalism in the home countries of journalists and commentators. But people forget that unlike many other places, the Greeks ran huge, unsustainable budget deficits even before the crisis; nobody knew how bad the budget hole really was given the deceptions perpetrated by the ruling Greek politicians and parties (and enabled by Goldman Sachs); the state apparatus was, in part, still based on client-ism (which de facto meant it was expensive and unresponsive to real needs). One should argue over the shape of austerity and the distribution of hurt, the out-sized influence of the interests of financial capital, the willingness of Northern EU countries to protect their own banks at the expense of ordinary Greek citizens, etc., but the Greek crisis really was exceptional. The Italian budget is in structural surplus and while it has a large debt, it is not unprecedented. What Italy needs --at least until we have a completely different political-economic paradigm -- is a return to economic growth (after several decades of stagnation). And for that it needs serious reforms.
The unfolding crisis in Italy is different in that the Italian economy and the financial sector supported by it, is large enough that a crisis for it may well cascade into a severe Eurozone crisis. Northern Italy is not just fully integrated into the European economy, but a central hub of it. It would not just be a financial crisis, but supply chains would be disrupted in all kinds of ways. More interestingly, the current political establishment, as represented by the current parties in parliament, seems less committed to the EURO. But Italy is also importantly different from Greece in that political influence and fortune is not only tied to government employment and largess. While an exit of the Euro would be painful on income and wealth, there are many industries that would gain genuine competitiveness vis a vis the other members of the EU heartland. The President's veto of an euro-skeptical minister of finance represents the public debate -- and balance of power -- between economic and political factions/interests that prefer staying within the Euro (Italy is one of the original EU6), and those that wish to return to the freedom to devaluate common in Italy prior to joining the Euro.
There are two important difference between Greece and Italy I wish to highlight here. First, in the decades leading up to the Euro crisis, Greece had spectacular growth rates whereas Italy, starting from much higher wealth and development, has been stagnating for decades now. Even so, through countless referenda and elections, Italian voters have prevented the rationalization of state capacity--clearly unhappy with the status quo, but fearing such rationalization even more.
Second, Italy is the canary in the European political coalmine. It was the place where social democracy and christian democracy -- the two central political movements, which were central to most governing coalitions, of the post WWII settlement -- first imploded and replaced by (what is commonly referred to as) populism-cum-authorianism, often (but not always) coupled with regionalism and xenophobia/Islamophobia alongside (and this is crucial) a more general decline of progressive forces (be they greens, socialists, communists, who all seem to fight over position within a declining number of overall votes, etc.). [Germany is the exception to the rule, with Christian democracy outperforming.]***
What's striking about the most recent election is that regional forces won, but the previously popular authoritarian populist party (centered on Berlusconi) did not do so well and there is now an example of a really successful modernizing populist-left-leaning party (M5S). There are more such parties in Europe (Podemos in Spain come to mind, although it seems sociologically different; Syrizia in Greece, too, although it has roots in traditional, albeit rather radical, left parties, which have more affinity with the old left wing of the British Labour party, now ascendant again with Corbyn).++ But M5S represents a change of the guard on the left (and perhaps making left-right distinctions increasingly senseless).
As somebody who thinks that European reform has to start from a renewal of its democratic politics, the current Italian crisis is, thus, partially good news. For, with the collapse of the traditional parties and the collapse of the populist-authoritarian option, there is finally also an opportunity to try out different policies and learn from each other on a continent wide scale. This is, in fact, as David Runciman reminded me (recall) recently, one of the core strength of democracies--lots of ideas get tried out on a regular basis. Most of them fail to stick, but the willingness to experiment and change also means big breakthroughs are possible. For, too long, European politics has been frozen in carefully calibrated political forces that prevented much change, or with authoritarians which were bereft of policy ideas, and so we have seen few experiments from the bottom up. (We did have quite a few top-down experiments!)
Yes, xenophobia was a key factor in the Italian campaign, and with slow growth and an aging population fearful of continued immigration it won't disappear, alas. But for the first time in living memory, democratic experimental-ism has a chance to start delivering anew and tap into the dynamism of Italian society. While I personally would prefer to see this experimentalism within the EU and its institutions, including the Euro, and would argue for renewal of liberal values more generally, the worst thing that could happen right now is that continued membership to the EU/Euro, and purportedly neutral technocracy, is seen as the main obstacle to such experimentation to be overcome.
*There was also fear that an exit from the Euro and reintroduction/devaluation of the Drachme would entail both open-ended liabilies to foreign creditors (demonimated in Euros) as well as an export sector (tourism) which could not be relied upon to pay taxes.
**There are interesting and complex issues pertaining to Greek state capacity, which is strong in some areas, but [from a Weberian, northern European perspective] extraordinarily weak along other dimensions (see the previous note about taxes).
+Not to mention very influential (then not anymore since Brexit) British pensioners. My own view is that during the crisis an opportunity was missed to reach a decisive settlement between Turks and Greeks on Cyprus.
***One may argue that if Dominique Marie François René Galouzeau de Villepin had not been caught up in a corruption scandal, French christian democracy would be in power today. That may be true. But the fact that he was caught up in such a scandal is not an accident.
++Syrizia's attitude toward Euro/EU is complex, but it strikes me as less lukewarm than Corbyn.