Prime Minister Giuseppe Conte talks to journalists.
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LONDON – Italy’s latest political crisis will ultimately not lead to the establishment of a populist or anti-EU government in Rome, a former minister told CNBC as the country moves to a new government in the middle of ‘ looking for a pandemic.
Italy faces fresh political uncertainty after former Prime Minister Matteo Renzi withdrew his support for the current coalition government. Its small party – Italia Viva – has supported the Five Star Movement and the Democratic Party, two pro-EU parties that have been in power since the summer of 2019.
The differences over how to spend future European recovery funds, however, led to Renzi withdrawing his support and causing the resignation of two Italia Viva ministers. This included Elena Bonetti, the former Minister for Family and Equal Opportunities.
“What we do not want to do is form an alliance with a populist, anti-European right-wing government,” Bonetti told CNBC’s Joumanna Bercetche when asked about possible government formations ahead.
We believe that we need to place the future prospects of Italy in a European context.
Elena Bonetti
Italy Viva member
The tripartite alliance was vital to keep anti-EU politicians away from the government during a previous political crisis in the summer of 2019. But support for anti-immigration and anti-EU parties is strong in Italy, where Lega and the brothers of Italy are currently voting on first and third respectively.
“We believe we need to place Italy’s future prospects in a European context, so no populist or anti-European choices will be made,” Bonetti said.
Financial markets have in the past responded to comments from anti-EU politicians in Italy who, for example, suggested that the country would be better off outside the eurozone – the 19-member region in Europe where countries have the same currency.
The latest crisis has led to an increase in yields on the 10-year Italian standard bond over the past week, but overall the impact on the market is somewhat limited.
The European Central Bank is making massive purchases of government bonds as a result of the pandemic, and the European Union will release an unprecedented level of fiscal stimulus across the region. The monetary and fiscal reactions have reduced borrowing costs for European governments.
But the Italian political crisis comes at a particularly challenging time, with the number of Covid-19 infections showing no signs of slowing down, and economic damage likely to lead to a contraction of 10% of GDP (gross domestic product) by 2020 meebring.
Megao Salvini, Lega’s party leader, speaks to the press in connection with the government crisis and calls for the resignation of Prime Minister Conte and the new election.
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Prime Minister Giuseppe Conte is due to address the current crisis next week, but it is still unclear whether he will retain his position and which parties will come together to form a new government.
“Conte may take some time to reflect on his move as he tries to find lawmakers from other parties to fill the void left by Renzi’s party,” said Wolfango Piccoli, co-president of research firm Teneo , said in a note and suggested that the current crisis may drag on for some time.
There are three main options to resolve the deadlock: A new coalition government, perhaps with another prime minister; a government formed mostly by people without political affiliation but with important technical knowledge; or quick elections, which the ruling parties want to avoid.
“We still think Conte is likely to stay in charge,” Federico Santi, senior analyst at consulting firm Eurasia Group, said in a comment, giving the scenario a 40% probability.
He also said that ‘quick elections are unlikely for now’, but if they did, government parties would likely face serious setbacks in the event of elections, which would likely pave the way for a right-wing Eurosceptic government. ‘