Italy’s coalition government has been plunged into crisis and the EU’s landmark recovery fund is the proximate cause.

Matteo Renzi, the former Italian prime minister, yanked three of his cabinet ministers from the ruling coalition on Wednesday evening and withdrew his Italia Viva party’s support for the government led by Giuseppe Conte.

The manoeuvre had been on the cards after Mr Renzi emerged as one of the fiercest critics of the prime minister’s plans to spend more than €200bn in EU grants and loans from the European Commission’s Covid-19 recovery fund.

The resignations also mean the ruling coalition loses its majority in the upper house of parliament with the loss of support from Italia Viva’s 18 senators. The FT reports that Mr Conte’s options include asking Sergio Mattarella, the country’s president, for permission to form a new government with support from smaller parties or resigning to pave the way for another administration to be formed. Both coalition parties from the left and the anti-establishment Five Star Movement have backed Mr Conte.

Mr Renzi’s gambit may be designed to bolster his small party’s bargaining power and his own profile, but it could easily backfire as the country battles the pandemic.

It is also not the first time that Brussels has watched as Mr Renzi embarked on a high-stakes political gamble that could throw Italy’s economic fortunes into further jeopardy. The 46-year-old — nicknamed “demolition man” — was dumped from office in 2016 after calling and losing a risky constitutional referendum.

The latest turmoil in Rome is the first notable example of how fragile domestic politics can come apart over how to manage the unprecedented wall of cash that will be disbursed by Brussels to member states. Italy is the single biggest beneficiary of the EU’s Covid-19 recovery package.

On top of this fresh bout of political uncertainty, Rome also faces bureaucratic and administrative bottlenecks in making sure the money is spent efficiently.

Mr Renzi has lambasted the government’s decision not to tap cheap loans from the European Stability Mechanism — a neuralgic issue for Five Star. He has also demanded more money for healthcare, education and culture in the government’s draft recovery plan.

EU officials are still hopeful the Italian crisis will be resolved and will not derail the timetable to formally ratify the commission’s borrowing spree, which needs to be passed by all governments in the coming months. Brussels wants to begin scrutinising and approving national spending plans by the summer and disburse the first wave of money in the second half of the year.

But domestic politics often has a habit of getting in the way of Brussels’ carefully laid plans. The Dutch will need to ratify their plans before they hold elections in March, while Estonia’s coalition has collapsed this week. One senior diplomat said all member states were acutely aware of the urgency to approve the spending spree “because without it, the commission can’t go to the markets”.

Germany’s dominant conservative party picks its new leader this Saturday. Guy Chazan profiles the three men who are leading the race to replace Angela Merkel as chancellor and two others potential candidates. In a paper for the Journal on Democracy, Hans Kundnani and Sheri Berman see Germany as a paradigmatic example of the dysfunction of European democracy: too much convergence.

The college of EU commissioners takes part in a series of seminars as they prepare the agenda for a busy 2021.