After months of political deadlock it looks like Italy may soon have a government. Today, Enrico Letta was asked by President Giorgio Napolitano to form a coalition government. Letta, the deputy leader of the left-leaning Democratic Party, now faces the unenviable task of putting together the government of a country that faces enormous economic challenges.
Letta will replace Mario Monti, who put together a technocratic government that included no elected officials after he was appointed prime minister in November 2011.
Whatever government Letta puts together must include representatives from the Democratic Party and the right-leaning People of Freedom Party and pass a vote of confidence in parliament. Given the political awkwardness that putting the coalition government together will involve it is hard to see how much the new Italian government will be able to achieve.
Many governments across Europe have been implementing so-called austerity, much of it being imposed by Germany, which is providing a lot of money for bailouts across Europe. Thankfully, German Chancellor Angela Merkel recently put the issue of austerity in perspective, saying that what everyone else is calling "austerity" is "balancing the budget."
Since the euro crisis began there has been an ongoing debate on whether European government should be stimulating their economies or cut spending. Letta will have to now see which versions of these two options his new government will be able to implement.
During Monti's time as prime minister Italy did implement austerity measures, and how the new Italian government decides to deal with the ongoing euro crisis will be watched very carefully by investors and other governments. That the two major parties that will have to be part of the coalition government will have disagreements on how best to address Italy's economic future means that any agreed upon economic policy will probably not be what Italians require in the midst of the euro crisis.