The Lega-Five Star Movement (M5S) coalition has sparked fear among European investors and market analysts after pledging to “immediately” introduce the financial changes the parties campaigned for ahead of the March 4 election.

These hefty reforms include the creation of a flat tax, which imposes the same tax percentage on all individuals regardless of income, the introduction of a national basic income and the abolition of the Fornero reform, which in 2011 established a higher retirement age for both men and women.

Analysts and the markets didn’t expect these moves to be implemented before 2019, after the Italian summer holidays – which usually put the country’s parliament on a halt until September – and the yearly approval of the financial law in autumn.

But last Sunday M5S leader Luigi Di Maio took them by surprise, saying: “Let’s make it clear, the basic income and flat tax, together with the abolition of the Fornero reform, are social emergencies.

“They must be implemented immediately.”

The abolition of the 2011 pension reform and the introduction of a flat tax will cost some £73billion (€82 bn), according to Wired Italia, an expense that could bring Italy on the brink of the crash, taking with it the rest of the eurozone.

If the govenrment decided to go ahead with these measures, Prime Minister Giuseppe Conte could find himself clashing again with German Chancellor Angela Merkel and her country, historically the financial motor of the European Union.

Marcel Fratzscher, the President of the German Institute for Economic Research (DIW), warned yesterday about the risks Rome poses to the survival of the Eurozone.

In a bombshell interview, he admitted he fears the impact the new populist government will have on Europe more than Brexit.

He said: “I do not see Brexit as a real risk for the economy, even if things will get bumpy politically.

“For me, the big risk factor is Italy and the trend towards nationalism and populism in Europe.

“If the new Italian government seriously implements a referendum on euro membership, that would be a disaster.

“Then investors would leave the country in droves, and there could be great unrest in the financial markets.”

Mr Conte and Ms Merkel already faced each other on another topic close to the Italian government’s heart, immigration.

In June, Mr Conte took a swipe at the Chancellor ahead of the mini summit focused on migratory movements in the continent, arguing Germany were trying to lead the debate over the issue forgetting about Italy and other Mediterranean countries facing hundreds of arrivals every day.

Economists Alberto Alesina e Francesco Giavazzi wrote on Italian daily Corriere della Sera: “Investors went on holiday convinced nothing significative would happen in Italy until June 2019.

“They thought government parties would not risk, in the run up to the European elections, to provoke a financial crisis that would be very expensive for their voters, especially in the northern areas of the countries that voted Lega.

“But this conviction today may be proven wrong.”

The economists recounted all the biggest financial crises of the last decades started in August, hinting August 2018 could see a new crash sweeping over Europe. …..More Here