Italy Left Waiting for a Premier as Populists' Talks Drag On

Italy is still waiting for its next government after talks between the two populist leaders who want to form it dragged on Wednesday night.
The anti-establishment Five Star Movement and anti-immigrant League are putting the finishing touches on their policy program, Five Star leader Luigi Di Maio said in remarks cited by newswire Ansa. The program is ready though he and League chief Matteo Salvini need to “resolve some issues,” Di Maio said.
More than two months after Italy’s inconclusive election on March 4, the two sides have repeatedly blown through deadlines set by President Sergio Mattarella as they try to find a deal. Salvini and Di Maio have yet to say who will be prime minister, and newspaper Corriere della Sera reported they may take turns.
Italian bonds tumbled on Wednesday after reports the next government would demand a write-down on debt held by the European Central Bank.
League economic adviser Claudio Borghi told reporters there is no proposal to cancel part of Italy’s debt in the draft government program. He said there is “simply the request for a change in accounting rules” so that securities bought by the ECB would not count toward the debt-to-gross domestic product ratio. He said the request would apply to all EU countries.
Italian yields came off their highs of the day after Borghi’s comments, though the 10-year spread over German bunds widened to 151 basis points, the most since January.
Italian Populists Say Government Talks in Final Stretch
Bloomberg’s John Follain reports on the talks between Five Star leader Luigi Di Maio and League chief Matteo Salvini.
(Source: Bloomberg)
Salvini himself was dismissive of investors’ concerns, reminding supporters of how a market selloff helped unseat his center-right ally Silvio Berlusconi during the financial crisis.
“The spread is going up -- do you remember the spread?” he said in a live. “The games at the table of big finance, who buys, who sells, who buys, who sells. Do you remember how the last legitimate government of Silvio Berlusconi, which the League was part of, went home in 2011?”

Precarious Finances

Analysts say that Five Star and the League’s spending plans -- which include slashing the main tax rate for companies and individuals to as low as 15 percent -- are potentially so destabilizing for Italy’s precarious public finances that they would likely run into significant obstacles either from the courts or the parliament. Other campaign promises include introducing a basic income for poorer Italians, and plans to scrap a pension reform that helped stabilize Europe’s biggest public debt pile during the crisis.
Corriere della Sera estimated that the package might cost as much as 100 billion euros.
Mattarella himself has been concerned about the impact of the populists’ pledges on fiscal and foreign policy since Salvini’s center-right alliance and Five Star emerged as the biggest groups from the March 4 election.
Both Salvini and Di Maio have said they want their voters to have a say on the joint government program they’ve drafted. Once they present it, Di Maio promised an online vote, while the League wants to set up ballots in piazzas across the country.
If voters back the two leader’s efforts the ball will go back into President Mattarella’s court. Di Maio and Salvini are expected to report back to him with their plans. The 76-year-old head of state, a former constitutional court judge, has signaled he could play an interventionist role in vetting their policy plans, as well as their candidates for the premiership and ministerial posts.
Should Di Maio and Salvini’s efforts fail in the final stretch, Mattarella may revert to an earlier plan to appoint a non-partisan premier, though both leaders have said they’ll use their blocking majority to shoot down any such candidate and trigger new elections.