French sovereign risk has evaporated as the danger of an anti-EU populist government recedes. Italy, maybe not so much. Although the spread between Italian 10-year government debt and German 10-year Bunds has narrowed from its recent wides, Italy still pays about 2% more than Germany for 10-year money. Italy’s political system is in permanent crisis after the fall of Prime Minister Matteo Rienzi.

Not much will happen for the next few months as attention focuses on the German national elections in September (Asia Unhedged has its bets on yet another term for Chancellor Merkel). But Italy will hold national elections next year, and the likelihood of a populist eruption is much greater than in France.

Italy’s economy has shrunk by 8% since the pre-crisis peak of GDP in 2007 and remains in the doldrums. And as Italians like to point out, Italy had Trump twenty years before the US, in the personage of Silvio Berlusconi. At present Italy’s populist parties of various stripes collectively poll enough votes to form a hypothetical government. An Italian crisis is still a small dark cloud the size of a man’s hand, but worth watching.