The Italian Conte fights for power after Junior quits Ally

Italian Prime Minister Giuseppe Conte is struggling to hold on to power after a junior partner in his coalition has withdrawn and robbed him of his majority in parliament.

Former Prime Minister Matteo Renzi said Wednesday evening that ministers from his Italy Alive party would leave the cabinet and attack Conte for not doing enough to address the country’s problems. Although the party is small, Conte relied on it to keep his majority. Conte can seek a vote of confidence in parliament next week, newspapers included the Republic reported.

Renzi’s decision leads to a government crisis that can last for days or even weeks and for which no clear solution is in sight. Before taking any other step, Conte will have to formally accept the resignation of Renzi’s two ministers.

Still, Conte has several avenues of staying in power, or returning as prime minister later:

• He could try to win a vote of confidence with support from both parties inside and outside the current government and unaffiliated lawmakers. That could mean relying on forces like Silvio Berlusconi’s Forza Italia party to keep the government in power. Conte has agreed with President Sergio Mattarella to avoid a measure of confidence until new legislation on lighting and shortages is passed, La Repubblica reported.
• He could resign, which would lead to another round of talks between the parties. That could eventually lead to a new government headed by Conte.
• President Mattarella, whose mostly ceremonial role includes responsibilities for ensuring political stability, could install an interim administration to run the government until the final election. A placeholder administration could give Conte time to organize a future election campaign.
• A broad alliance with coalition parties and possibly center-right forces could also try to forge a government under a figure like ex-president of the European Central Bank Mario Draghi.
• Rapid elections, although a risk, still seem like a remote possibility. The president – who has the authority to hold a new ballot – would be reluctant to see the country vote during the pandemic. “A quick vote, the worst scenario for investors, remains unlikely at this stage,” said Lorenzo Pregliasco, political analyst at YouTrend.

Italy ten years yields increased by 1 basis point to 0.61%, with the spread on German debt rising to 113 basis points. Any misstep in Italian bonds is an opportunity to enter the market, as quick elections are unlikely given the “incentive” to manage the European Union’s recovery money and the tight timeline to call a vote, Citigroup strategists led by Aman Bansal said.

‘Act of Courage’

To withdraw at such a pivotal moment for the country amounts to “an act of courage,” Renzi said at a press conference in Rome. The Conte government has not done enough to solve problems from education to infrastructure and the virus, the ex-prime minister said.

The timing of the crisis for Conte could hardly have been worse, as Italy faces an ever-worsening pandemic and recession. At a cabinet meeting scheduled for Thursday, Conte will sign a plan to increase the country’s deficit by about 24 billion euros ($ 29 billion), while his government overnight expanded its emergency powers to combat the pandemic. fight until April 30.

Renzi had been putting pressure on Conte since late last year, rejecting the prime minister’s plans to manage and spend EU bailout funds. Renzi says the plan has been improved based on his demands, but he has pushed for further conditions, including Italy tapping into a European Stability Mechanism credit line for health spending.

“The real problem is, should we spend more on health with the ESM?” Renzi said after his announcement on Wednesday.

– With the help of Marco Bertacche, Neil Chatterjee and Samuel Dodge

(Updates with bonds in sixth paragraph.)