The EU's worst nightmare has materialised: eurosceptic parties Five-Star Movement and League have agreed a coalition deal that demands changes to European migration policy, discussions on existing European treaties and financial contributions to the European budget. They are also pushing for a review of EU rules imposing fiscal restrictions on national governments.

While much of the focus has been on the parties' relationship with the EU and whether this brings a so-called Italexit closer, limited attention has been placed on the fragile state of the Italian economy, which presents the biggest risk to...