Italian bonds and the euro gain as coalition of populists collapses

Devin Lawrence
May 28, 2018

Italy has been without a government since elections on 4 March, at which voters flocked to anti-establishment and far-right parties.

Italy's president has come under fire after he vetoed the proposed economy minister of what would have been Western Europe's first populist government, ushering in the likelihood of a new election within months.

Goldman Sachs strategists said political uncertainty will remain elevated, because the prospect of new elections would remain a drag on the economy.

Italian Premier-Designate Giuseppe Conte says he tried his hardest to form the country's next government and had full co-operation from would-be coalition partners, the populist 5-Star Movement and League parties.

Mattarella confirmed that the nomination by the Five Star Movement and the League of Paolo Savona for economy minister saw the end of Conte's brief mandate.

Savona's criticism of the euro and German economic policy has further spooked markets already concerned about the future government's willingness to reign in the massive debt, worth 1.3 times its annual output.

"I'm not considering the individual, I don't want someone who supports an opinion, which was expressed a couple of times that would inevitably lead to Italy's exit from the euro", Mattarella said.

League and 5-Star "have a parliamentary majority".

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The president, however, took pains to explain that he was fully in his constitutional right and duty to reject Mr Savona as economy minister, saying he had repeatedly asked for a minister who would not be perceived as entertaining Italy's exit from the euro.

"The president has asked me to go before parliament with a program that will bring the country to new elections", he said. "Then parliament would be dissolved with elections at the beginning of 2019", Cottarelli said shortly after being named interim prime minister.

Mr Mattarella's veto on Sunday enraged both League leader Matteo Salvini and Five Star Movement leader Luigi Di Maio, who threatened to start impeachment proceedings against him.

"When the people give more than 51 per cent of consensus to political forces that want to represent the interests of the Italian people, they find a way to block everything. Tomorrow we want to know the date of the election", Salvini said on Sunday during a live stream on his Facebook page. At one point, the Borsa Italiana had risen by 1.9%.

The president of Italy, an institutionally respected figure, has limited powers but ones which have often proved crucial during political crises.

"Blocking a ministerial choice is beyond (the president's) role", Alessandro Di Battista, a top 5-Star politician, said.

The League's chief Matteo Salvini also criticised the president's decision, calling for mass protests and accusing Brussels and Germany of meddling.

The centre-left Democratic Party (PD) and the centre-right Forza Italia party, led by controversial former PM Silvio Berlusconi, each denounced calls for impeachment. Italian heads of state have made bold moves in the past.

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