A few months ago, a leading politician in Portugal’s ruling Socialist party explained to me the eurozone dilemma. Membership of the currency meant the public investment they desired was impossible. “It’s like social democracy was forbidden,” he explains. But exiting the euro could be even worse, because of the resulting economic trauma, and the political party held responsible would incur such public wrath that it would surely vanish.

Italy’s new government is certainly not social democratic, or remotely left of centre. It is a stitch-up between the Five Star Movement’s (M5S) peculiar brand of centrist populism and the League’s xenophobic nationalism. It does not offer the answers to Italy’s profound ailments. The left in Italy has largely vacated the political stage: the sort of disillusioned young voters who flocked to Spain’s radical Podemos party or Jeremy Corbyn’s Labour have instead opted for M5S. But the Italian populists’ assumption of power is, in part, the consequence of the devastating economic consequences of the current incarnation of the eurozone. If the eurozone – perhaps even the European Union – is to survive, radical change is desperately needed.

Backlash against the refugee crisis has played its part, too. But Italy is a nation in economic and social crisis. Both economic output and living standards have stagnated for two decades. Almost one in three young Italians are without work. Since the financial crash a decade ago, the number of Italians at risk of poverty has soared by more than 3 million. From the beginning, the currency has suited Germany because a weak euro is good for its exports. Italy’s problems cannot be blamed exclusively on the eurozone: but its strict fiscal rules have tied the nation’s hands. The ousted Democratic party was hardly leftwing either – despite its origins in the old Communist party, it is a thoroughly neoliberal outfit – but even its former prime minister Matteo Renzi called unsuccessfully for the rules to be changed to enable him to invest.

In Italy, it is the young who are most disillusioned with the EU. One poll found that more than half of those under 45 would vote to leave, while 46% would opt for remain: for over 45-year-olds, 68% would plump for remain, just 26% for leave. A timebomb is ticking: a collapse of the EU, however implausible that may seem at present, would have potentially devastating consequences, which is why drastic change is necessary. The new Italian government may find itself on a collision course with eurozone rules. Germany’s Angela Merkel – who bears chief responsibility for the disaster of eurozone austerity – has said that while she will work with any government, they must abide by those rules.

That is not good enough. When Greece’s Syriza suffered its punishment beating, the European council president Donald Tusk said it was “ideological or political contagion” that he feared, not “financial contagion”. Greece had to be taught a lesson, in other words, to discourage Spain, Portugal and Italy from electing their own anti-austerity challenges to the eurozone. The continuation of this approach spells disaster, not just for millions who have suffered because of austerity, but the future of the eurozone and the EU. A new Socialist government has come to power in Spain: it must now try to build a coalition of change within the EU. If the EU does not budge, then calamity beckons.

• Owen Jones is a regular Guardian contributor