LUIGI DI MAIO (pictured, left) is only 31, but as leader of the Five Star Movement (M5S), he is poised for a decisive role in Italy’s next government. After coming first in the general election on March 4th, the M5S appeared close this week to sealing a coalition agreement with the far-right Northern League and its leader, Matteo Salvini (pictured, right). That would give Italy, and western Europe, its first all-populist government. Mr Di Maio, a university drop-out, is known for his grammatical howlers, but he can concoct a good soundbite. “Obviously, history is being written,” he declared on May 13th, as he left another round of the interminable coalition talks. “So it takes a bit of time.”

One problem the two sides had not resolved, as The Economist went to press, was finding a prime minister. (A possibility was that each party’s choice might serve half a term.) Yet the programme on which they were toiling may indeed be historic. If they can agree, one of the European Union’s most important states will have a Russophile government bent on challenging the constraints of the euro zone. An M5S-League coalition would be eccentric, idealistic, tinged with xenophobia, intolerant of corruption and economically illiberal. If the two anti-establishment parties fail to agree, the outlook will be no less uncertain. It will mean either new elections, or a technocratic government lacking the authority to implement necessary reforms.

Small wonder that signs of disquiet are emerging in Brussels. The vice-president of the European Commission, Jyrki Katainen, warned that Italy will get no exemptions from the euro zone’s fiscal rules. His colleague, Dimitris Avramopoulos, hoped that the government would not change Italy’s stance on migration. Mr Di Maio and Mr Salvini reacted indignantly.

Markets have begun to worry, too. On March 16th the spread in yields between Italy’s ten-year government bonds and those of Germany jumped to more than 1.5 percentage points. In a statement intended to reassure investors, the two party leaders said they had decided “not to call into question the single currency”. But a draft of their government programme leaked to the Italian edition of Huffington Post, a news website, showed that until two days earlier they had been doing just that. It called for procedures to allow member states to leave the euro and “recover their monetary sovereignty”. It also foresaw the immediate scrapping by Italy of all sanctions against Russia. Far from being a threat to Western democracy, Mr Putin’s domain would be a “strategic interlocutor”.

In the latest draft, the parties’ most controversial proposals have been watered down. The League’s electoral pledge of a flat 15% income-tax rate has acquired another band at 20%. It may be introduced only partially and gradually. The M5S wants what it calls a “citizenship income” of €780 a month, but this will apparently be available only to job-seekers and the most needy; it will not be introduced before 2019. Yet both parties still appear bent on undoing pension cuts introduced in 2011 as a sign of Italy’s determination to get a grip on its public finances. That raises the question of how to avoid adding to the public debt, which stood at 132% of GDP by the end of 2017. Oxford Economics, a consultancy, thinks the pension roll-backs would run to €15bn a year. The tax cuts and citizenship income could well cost more.

Plans to finance these proposals seem shaky. The earlier draft imagined cutting five percentage points of GDP from the national debt by “selling” the Treasury’s portfolio holdings to the institution that invests Italians’ postal savings—which is controlled by the Treasury. Ten more points would have come from securitising and marketing publicly owned property. The negotiators have wisely dropped their assumption that the ECB would obligingly forgive €250bn in Italian bonds acquired through its programme of quantitative easing, though they hope for some debt cancellation across the euro zone.

Even more worrying is the parties’ indifference to Italy’s central economic weakness: low productivity growth. Few of the measures in the draft would boost competitiveness. Indeed, the earlier draft promised small businesses protection from “the liberalisation of working hours, the rapid expansion of large retailers” and the EU’s directive on deregulating services. The parties seem committed to taking on corruption. But swifter civil justice, which Italy urgently needs to secure foreign investment, does not seem to be a priority.

Until this week markets had been calmed by the economy’s relative solidity. Italy’s GDP grew by 1.5% last year and the health of its banking system has improved. The ECB is keeping the interest rates on Italy’s debt low, and much public debt is now held either domestically or in Frankfurt, lowering the risk of big price movements.

Coalition of the wishful thinkers

Another factor is the expectation that EU rules and fear of upsetting markets will deter radical change. Analysts at Unicredit, a bank, point to Portugal and Greece, where populist governments toned down their policies when faced with reality. But Italy’s new government may be an exception. The League resembles other populist-nationalist parties such as France’s National Front. The M5S is a very different creature, launched in 2009 with a mission of introducing direct democracy through online voting. As it has snowballed, it has gathered a heterogeneous mix of policies and activists from left and right alike.

One remaining area of disagreement between the two parties is infrastructure. The League would like to see big investments to create jobs. That is anathema to the environmentalist M5S, one of whose negotiators cut her teeth in a campaign to stop a high-speed rail link to France. The coalition talks have shown that Italian populism comes in radically different forms. If the marriage of the M5S and the League goes ahead, it may be stormy.