After months of political deadlock following an inconclusive election, Italy is on the verge of a major political crisis with global implications. Earlier this month, the far-right League party and the Five Star Movement – which practices a new breed of “centrist populism” – proposed a new government that European Union officials saw as a threat.

On May 27, Italian President Sergio Mattarella vetoed the appointment of a Eurosceptic finance minister in an attempt to reassure financial markets and dispel the risk of Italy abandoning the euro, the EU’s single currency. But his decision might deliver just that.

While it is customary for Italian presidents to oversee government formation and to intervene to block a minister deemed unfit for the role, Mattarella’s decision marks the first time that a veto is used because of a candidate’s political views on the economy.

It is to be noted that Mattarella had no qualms about accepting Matteo Salvini, the leader of the League, as an interior minister, despite his calls for the deportation of up to half a million migrants and refugees and his racist views.

The Five Star Movement and the League have refused to propose an alternative name for the finance minister’s position. In a clear sign of the state of confusion Italian politics is in, the two parties are oscillating between demanding that the president is impeached and asking him for another chance to form a government.

Italy has traded a Eurosceptic finance minister today for a much more vehemently anti-euro government tomorrow.

In the meantime, Mattarella has responded by appointing a technocratic cabinet with no chance of securing a parliamentary majority. If confirmed, its task would be to lead the country to early elections.

Regardless of what happens, the president’s veto has led to further polarisation of the political scene, with Italians being compelled to join one of two radically opposed camps. On one side, there are the parties supporting the president, defending Italy’s Eurozone membership and advocating continuity in political and economic policies.

They are perceived to be part of the “the establishment” and gravitate around the Democratic Party, which was previously in power. Their victory would lock Italy’s commitment to the EU and guarantee business as usual on the economic front. Unfortunately, for many Italians, business as usual means a stagnating economy and enduring double-digit unemployment within an unsustainable Eurozone.

The alternative, however, is worse. On the other side, the League and the Five Star Movement cry out against the excessive influence of international financial markets and the EU bureaucracy over the Italian democracy. They demand that Italy “regains” its sovereignty and stops being “a colony of the Germans or the French”. A reckless EU establishment has admittedly helped these ideas gain much traction in the Italian society. On Monday, EU Commissioner Guenther Oettinger sparked outrage after saying that the whip of the financial markets should dissuade Italians from voting for populists.

The financial markets have reacted in horror, with Italian government debt under pressure and a plummeting stock exchange. And the reason for all this is simple: The upcoming elections will be perceived as a referendum on Italy’s membership in the Eurozone, while Mattarella’s actions have given an immense boost to the nationalist camp and have further radicalised its positions.

The latest polls show that the League has nearly doubled its popularity, with 27 percent of respondents saying that they would vote for the party (the League gained 17 percent in the March 4 election); the Five Star Movement is holding steady at 30 percent. Italy has traded a Eurosceptic finance minister today for a much more vehemently anti-euro government tomorrow.

More fundamentally, the ongoing crisis in Italy is part of a broader global trend: the division of the political space into two apparently opposed, but ultimately symbiotic, fields.

One is the new wave of nationalism nurtured by an establishment clinging to an obsolete economic model generating inequality and injustice and depriving a growing number of people of their right to a decent life. The so-called Washington consensus – promoting neoliberal globalisation, unfettered financial flows and booming international trade – is dead in the water. And the attempt of a discredited political class to cling to it is creating political monsters.

On the other side, the establishment needs the nationalists to ground its last attempt to remain in power. Remember Hillary Clinton’s statement during the 2016 US election campaign: “I am the last thing standing between you and the apocalypse”? This is “project fear”, the last trick of the elites. In Italy’s case, the establishment is using the danger of a Eurozone break-up to scare the electorate.

And so the establishment praising continuity and the nationalist-populist backlash end up feeding off and reinforcing each other.

It is no coincidence that the EU finds itself at the centre-stage of this crisis. Its policies combine elements of unbridled neoliberalism – for instance, in the form of a Central Bank indifferent to the plight of the unemployed – with elements of international solidarity – in the form of structural funds for the poorer areas of the continent.

The common currency was meant to bring its peoples closer together and nurture the beginning of a transnational democracy. But a currency without political oversight has achieved, just like Mattarella’s actions, a result opposite to the intended one.

The euro is setting nations and peoples apart. Without deep reform, and without a real democratisation of the EU, the Eurozone is ultimately bound to disintegrate. This would be a disaster of immense proportions. But while Europe would need urgent, serious, committed political and institutional change, all that seems to be on offer is a false choice between suicidal continuity and nationalist implosion.

What is happening in Italy today has global implications. An Italian exit from the Eurozone would trigger a crisis without precedent, dragging the EU into political and financial mayhem and possibly plunging the world back into recession.

But, more importantly, Italy is a canary in a mine – foretelling an imminent political crisis sweeping across the globe, from India to the US, from the Philippines to Hungary. It remains to be seen whether a world faced with a discredited establishment and resurgent nationalism will find the strength and vision to reform a dying international order.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.