(Bloomberg) — Acting Prime Minister Giuseppe Conte is poised to form a new Italian government this week from an unlikely alliance of political rivals, forestalling the threat of early elections that had spooked investors in one of Europe’s most-indebted countries.
Conte will present his new government lineup to President Sergio Mattarella by Wednesday, he said by video conference to a forum organized by newspaper Il Fatto Quotidiano on Sunday. The government could be sworn in by the end of the week, with a confidence vote in parliament expected the following week.
Conte, a little-known law professor in Florence before being catapulted in May 2018 to lead the outgoing populist government, has proved a skilled power broker, moving to forge a coalition between the anti-establishment Five Star Movement and their bitter political antagonists, the Democratic Party. Prospects that this new government would prove less confrontational with the European Union than his previous administration helped drive Italian bond yields to record lows last week.
“What I can tell for sure is that this government will be born; how long it’s going to last is hard to say. There are factors in favor and against this coalition,” said Roberto D’Alimonte, a political science professor at Rome’s Luiss University.
The two parties should be able to agree on fiscal and economic policies, with tensions arising over immigration, D’Alimonte said. This coalition will “be more accommodating with the EU” than the last government, which threatened to defy the bloc’s deficit rules to finance pledges to boost pensions and launch a universal basic income.
The yield on Italy’s 10-year bond dropped below 1% last week for the first time on record, significantly lowering borrowing costs for a nation with a debt of 2.2 trillion euros ($2.4 trillion), more than 1.3 times the size of the overall economy. The yield dipped as low as 0.92% on Aug. 29, with the spread over German securities narrowing to 166 basis points, the lowest since the forming of the previous coalition.
Conte’s first government — a tempestuous alliance between Five Star and the anti-immigration League party — lasted just 14 months. Given Five Star’s rocky relationship with the PD, investors may be overly optimistic about the new tie-up proving any more enduring, said Francesco Galietti, founder and chief executive officer at Policy Sonar.
“But it’s also fair to say that very few want to see elections in Italy and Boris Johnson delivering Brexit at the very same time,” he said, referring to the likelihood that a snap election would have been held in October, the same month the U.K. is due to leave the EU. “One problem at a time.”
Highways, Drilling, Immigration
In talks on Saturday, each side won promises that their ambitious, if politically difficult, agenda items would be considered in the new term.
Five Star secured support for proposals including a review of highway concessions, a halt to new permits for offshore oil drilling, a cut in the number of lawmakers and measures to counter illegal immigration and tax evasion. The PD won agreement on issues including cutting the fiscal burden, averting an automatic sales tax hike in the 2020 budget, a new law on immigration and boosting infrastructure projects.
Italian President Sergio Mattarella offered Conte a chance for a new term after Five Star and the Democrats said they’d back him in an abrupt attempt to prevent a snap vote. The unlikely alliance is a setback for League leader Matteo Salvini, who pulled the plug on his coalition with Five Star last month, toppling the government in a bid to force a new election.
“They are two forces that have engaged in a bit of political antagonism, but I now see a good working atmosphere and I see a commitment to forge a common project that serves the good of the country,” Conte said of his new allies on Sunday.
The next coalition will be built on brittle foundations. The PD is the party of the center-left establishment and provided three of the past four prime ministers. Five Star, an insurgent movement that grew up in opposition, won the most seats in the 2018 elections by savaging the governing PD during the campaign, denouncing the party as a corrupt, entitled, out-of-touch force of the past.
‘Mr. Nobody’
The real glue that holds them together is their disdain for Salvini, who served along with Five Star’s Luigi Di Maio as deputy prime minister in the previous government. Salvini’s strident anti-immigration and anti-EU screeds struck a chord with Italians, and his popularity surged, with the League eclipsing Five Star in the polls. At the time Salvini pulled the plug last month, the League’s support closed in on 40%, and the threat of an early vote that the party might win outright roiled markets in early August.
Rather than go quietly, Conte, dubbed “Mr. Nobody” by his critics, carved out a decisive role in resolving the crisis. He slammed Salvini as an untrustworthy political opportunist in his nationally televised resignation speech to the parliament and then outmaneuvered his former deputy by helping spur the new alliance that will deny Salvini the prize of a new vote.
“Conte has now dumped Five Star and has enthusiastically embraced the PD,” news wire agency Ansa reported Salvini saying. “How sad that the people’s lawyer is now the lawyer of the elite. They can’t avoid elections forever. We will be prepared to win.”
Five Star members will be called upon to approve the government plan via the movement’s Rousseau online platform on Tuesday, according to an official blog post. Five Star maintains direct voting as one of its core principles, though member votes on major issues generally pass.
(Updates with online vote in last paragraph)
–With assistance from Maria Ermakova.
To contact the reporters on this story: Andrew Davis in London at [email protected];John Follain in Rome at [email protected]
To contact the editors responsible for this story: Matthew G. Miller at [email protected], Ian Fisher, Jerrold Colten
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