Things appear to have reached something of a boiling point in Italy, where Matteo Salvini is under pressure to make a decision on whether to force a snap election.
It’s been clear since at least October that Salvini was destined to dominate Italian politics. His charisma, nationalist bent and populist appeal are all winning attributes in today’s political climate. When League garnered 34% of the Italian vote in the EU elections in May (double the party’s tally from the general election) the clock essentially started ticking on the dissolution of the fractious coalition with Five Star.
Salvini has variously insisted that League’s platform and priorities need to be implemented sooner rather than later or else he’ll move to consolidate power. After two months of bickering with Five Star and amid a ferocious rally in Italian bonds that perhaps gives Salvini some breathing room when it comes to chancing a BTP selloff, the time has come.
Read more: Either You Give Matteo Salvini €10 Billion In Tax Cuts, Or He Will Implode The Government, Ok?
Tensions between Salvini and Five Star have worsened of late over a hodgepodge of issues, not the least of which was League’s decision to pull out of a pact with Luigi Di Maio backing Ursula von der Leyen for European Commission President. Apparently, League was unable to secure a top European post for one of Salvini’s allies, Giancarlo Giorgetti.
The situation is complicated further by allegations (first reported by L’Espresso earlier this year) that a Salvini associate solicited Russians for money as late as February.
On July 10, BuzzFeed published a transcript from a meeting between that associate (Gianluca Savoini) and a trio of Russian go-betweens who, according to BuzzFeed’s summary, “can be heard negotiating the terms of a deal to covertly channel tens of millions of dollars of Russian oil money to Salvini’s party”. BuzzFeed also published the full transcript.
“The negotiation — which lasted for an hour and 15 minutes, interspersed with cigarette breaks and fueled by espressos — would involve a major Russian oil company selling at least 3 million metric tons of fuel over the course of a year to Italian oil company Eni for a value of around $1.5 billion”, BuzzFeed wrote, recapping the purported arrangement. The fuel was to be sold at a discount amounting to some $65 million. That money, BuzzFeed said, would be “secretly funneled to the Italian party via intermediaries”.
Both L’Espresso and BuzzFeed emphasized that their reporting did not amount to confirmation that any agreement was cemented and, apparently, didn’t provide evidence that any fuel was delivered or funds channeled to League. Salvini is adamant that he has “never taken a ruble, a euro, a dollar or a liter of vodka in financing from Russia”. (We’d have at least taken the vodka.) Subsequently, opposition lawmakers sought to have Salvini show up and explain the situation in Parliament.
This is the backdrop against which an already fraught situation is unfolding.
Technically, Salvini would need to confirm any plan to force a snap election by July 20 in order to allow time for the government to work through the budget wrangling process later this year. It’s possible President Mattarella wouldn’t acquiesce, where that means refusing to countenance an early vote in favor of searching out another viable coalition, although that seems far-fetched and wholly untenable.
On Thursday, Salvini indicated he doesn’t intend to meet Mattarella this week. “No government is collapsing tomorrow”, he said.
But Mattarella wants an answer and so do Salvini’s deputies, who are pushing hard for Matteo to ditch Five Star once and for all. Mattarella has reportedly given Matteo 48 hours to make up his mind. According to sources familiar with Salvini’s thinking, “the plan would be to seek an early election but to wait as long as possible to leave less time for Di Maio and Mattarella to come up with a response before August holidays”, Bloomberg reports.
In terms of markets, the timing is fortuitous. Between the ECB’s commitment to moving forward with more stimulus and the renewed hunt for yield catalyzed by the global nature of 2019’s epic central bank pivot, Italian bonds have been on fire. Yields are near the lowest since 2016.
Italian stocks, meanwhile, are on track for their best year in more than a decade and have risen every month in 2019 except May.
Yields spiked on Friday amid competing accounts around when, or even if, Salvini would pull the plug on the coalition.
From the perspective of markets, there are worse things than an Italy controlled by Salvini. After all, he’s the country’s de facto leader anyway, so you could argue that moving ahead with his economic agenda is preferable to constant bickering with Five Star, whose own priorities aren’t exactly market-friendly.
That said, Salvini is notoriously incorrigible when it comes immigration, is prone to bombastic rhetoric when feuding with Brussels and isn’t shy about suggesting that Italy would be better off without the euro, although he usually tries to downplay any suggestion he wants to pull his country out of the bloc.
On Friday, Salvini said he had no problem meeting with Di Maio. “[He’s] not the issue”, Matteo remarked. Rather, “there is a clear and total block over proposals and initiatives on infrastructures by some Five Star ministers which hurts Italy and that isn’t acceptable”.
