Italy’s premier-designate Giuseppe Conte said Thursday his new coalition would lead a “more united, inclusive” country after a deal was struck which cuts the anti-immigrant far-right and its leading figure, Matteo Salvini, out of power.
The anti-establishment Five Star Movement (M5S) and the center-left Democratic Party (PD), once bitter foes, agreed Wednesday to govern in coalition in order to stave off snap elections in the eurozone’s third largest economy.
“We must transform this crisis into an opportunity,” Conte said, insisting that Italy would once more become a key player in Europe after 14 months of a populist, anti-E.U. government.
The new government would create “a fairer, more competitive, more united, more inclusive country.”
The soft-spoken former academic, who was chosen as a compromise prime minister last year, was handed a fresh mandate by the president and said he would take a few days for political consultations to ensure a parliamentary majority.
Milan’s FTSE Mib was up 2.0 percent after his speech.
Conte said it was a “very delicate phase” for debt-burdened Italy, citing an economic slowdown in Europe and trade tensions between the U.S. and China.
“We have to make up for lost time so Italy can play the leading role (in Europe) that a founding country deserves,” Conte said.
Staving off a Crisis
The crisis was triggered on August 8 when far-right leader Salvini pulled his League party out of the governing coalition with M5S, calling for fresh elections he thought would make him premier.
Mattarella has been racing to find a solution to the political turmoil, with Italy under a huge debt mountain and pressured to approve a budget in the coming months.
Without a new government at the reins, it could face an automatic rise in value-added tax that would hit the poorest families the hardest and could plunge the country into recession.
M5S chief Luigi Di Maio has said the deal with the PD will have to be approved by his party’s members in an online vote, which could take place by this weekend.
Conte said he would “immediately get to work on a budget that will counteract the increase in VAT, protect savers, and give a solid perspective of growth and social development.”
He said the new coalition’s priorities would include improving infrastructure, boosting renewable energies and fighting tax evasion – but notably did not mention immigration, which has been Salvini’s political obsession.
“The agreement means we won’t have an election in the autumn and any budget confrontation with Brussels later this year may be less fierce than last,” said Craig Erlam, senior market analyst at OANDA.
“The two parties still very much have their differences and it’s unlikely to be a harmonious relationship but it will likely be a better match than the last,” he said.
Investors and markets have welcomed the likely return to political stability in the eurozone’s third largest economy, with Italy’s 10-year bond yield falling to a record low Wednesday.
Salvini’s Fall
Salvini has had a controversial 14 months in government – though scandals over potentially shady links to Russia and rosary kissing have done nothing to dent his popularity.
Salvini’s anti-Muslim, anti-immigrant stance has put him on a collision course with the world’s top Catholic – Pope Francis.
Francis’s pleas for compassion towards migrants have been met by tweets from Salvini on the dangers of immigration.
Salvini’s most famous policy has been his insistence on closing the country’s ports to people rescued in the Mediterranean, sowing chaos and spiraling humanitarian nightmare.
A known admirer of Russian President Vladimir Putin, Salvini has been pictured in pro-Putin T-shirts on visits to Moscow.
But his relationship with Russia is facing scrutiny after claims of an alleged bid by the League to broker $65 million in covert Russian funding.
Prosecutors in Milan opened an investigation into the reports, seen by some as an attempt by Russia to shape Italy’s results in the European elections.
Salvini has denied receiving any money but continues to face questions over possible collusion.
Unlikely Bedfellows
Analysts have warned the deal between the M5S — which had sworn never to ally with traditional parties – and the center-left, which has long loathed it, could quickly crumble.
“Any new government formed by these unlikely bedfellows has the potential to be a fairly short-lived affair, given that the onus will now fall on a new administration to implement new EU mandated spending reductions of up to 23 billion euros this autumn,” said Michael Hewson, chief market analyst at CMC Markets UK.
“These are not expected to be popular and likely to feed into the populist narrative of Matteo Salvini,” he added.
Salvini said Wednesday his party was confident it would win eventual new elections next year, saying “we’re in no hurry.”