The Italian Prime Minister answers questions at the press conference at the end of the year.
Alessandra Benedetti – Corbis | Corbis News | Getty Images
Italy is on the verge of a new political crisis as members of the coalition government question the prime minister’s plan for the country’s economic recovery.
The Southern European nation is no stranger to political conflict; Tensions, scandals and small majorities have led to more than 60 governments since World War II. However, the latest political dispute comes at a particularly painful time, with the number of coronavirus infections and deaths among the highest to date in Europe and gross domestic product (GDP) expected to shrink by about 10% by 2020.
“In the most likely scenario, the crisis will lead to the formation of a new executive,” Wolfango Piccoli, co-chairman of the consulting firm Teneo, said in a note on Monday.
Prime Minister Giuseppe Conte has been in power since June 2018, but he is already leading his second government after a political dispute in the summer of 2019 culminated in a new coalition consisting of the left Democratic Party and the Five Star Movement, another left-wing party, in the government.
The Gordian knot is how EU funds should be spent and whether they should be attributed to new or existing projects.
Alberto Alemanno
Professor, HEC Business School
The latest challenge pits Conte, without political affiliation, against former Prime Minister Matteo Renzi, who left the Democratic Party in September and founded his own group called Italia Viva, which supports the coalition and has two ministerial posts. However, Renzi threatens to withdraw his support for the current executive branch, arguing that Conte’s plan for economic recovery is not ambitious enough.
The European Union has agreed to tap into the financial markets in search of € 750 billion ($ 920 billion), which will be invested in the 27 countries to help them rebuild their economies after the coronavirus pandemic.
Italy is one of the main beneficiaries of these funds and expects approximately EUR 208 billion in grants and loans at low interest rates. The challenge, however, is how to get the most out of this money as Italy has the second highest public debt in the EU and its economy was already struggling before the pandemic.
“The Gordian knot is how EU funds should be spent and whether they should be attributed to new or existing projects. While the former would further increase Italy’s record-high public debt, the latter would benefit from the positive impact of the EU, ”said Alberto Alemanno, a professor of EU law at HEC Paris Business School, told CNBC Tuesday.
Experts like Teneo’s Piccoli believe the dispute “will come to a head later this week when Conte submits his revised economic recovery plan to the cabinet for approval. The trigger for the formal opening of the crisis could be the two’s refusal. ministers from Italia Viva. to endorse the plan. “
“Although Italia Viva is only a junior partner in the ruling coalition, the numbers are so tight in parliament, especially in the Senate, that the withdrawal of support can help build confidence in the prime minister,” he added.
Ignazio Corrao, an independent Italian lawmaker at the European Parliament, told CNBC on Tuesday that a quick election is likely to be avoided and that there will either be a new prime minister or a reshuffle of the cabinet.
Renzi “must use whatever political means he has now … to have power in the future,” Corrao said, suggesting that the political dispute could be a tactic for the recently formed Italia Viva party to gain more ground.
Yields on the 10-year Italian bond rose slightly this week as markets opened for the first trading days of 2021 as a result of the political situation. However, the yield is still trading at a low level at around 0.532% due to the massive amount of monetary and fiscal stimulus in Europe.