Things are back on the boil in Italy.
Just three weeks after Matteo Salvini last threatened to pull the plug on the fractious coalition with Five Star, the country’s de facto leader again delivered an ultimatum, this time during a meeting with Prime Minister Giuseppe Conte.
Apparently, Salvini has given Conte until Monday to get rid of Transport Minister Toninelli and (wait for it) Finance Minister Giovanni Tria. If his demands aren’t met in the next few days, Salvini is said to have indicated he’ll meet with President Sergio Mattarella (a precursor to dissolving Parliament).
Needless to say, Italian assets aren’t loving this.
10-year yields rose by as much as 11bps Thursday, although it barley registers in the face of the almost cartoonish rally in BTPs that’s unfolded amid the global hunt for yield. Italian yields are parked near their lowest since October 2016.
Local equities are down around 4% in August in sympathy with the global rout.
Salvini has repeatedly threatened to topple the government this year on the way to engineering new elections. League’s showing the EU vote in May made it abundantly clear that he’s holding the cards, but despite his penchant for bluster, Salvini has, by most accounts, resisted pressure from party hardliners to abandon Five Star and consolidate power.
But his patience has run thin recently for a number of reasons, not the least of which is what he calls foot-dragging on the implementation of League’s economic agenda. He’s also been dogged by accusations of improper financing from the Kremlin (see the linked post above).
“I’m not one for half measures, either we can do things fully and well or I am not one who clings on to his seat”, Salvini declared on Wednesday. “Something has broken down in recent months”.
Let’s not kid ourselves – this was “broken” from the beginning. It’s been clear for at least nine months that Salvini has no use for Five Star and his rising popularity meant it was just a matter of time.
It’s probably not a stretch to say that it would be preferable for Salvini to just pull the plug now and end this charade so markets can go ahead and get the selling out of the way before moving on to focus on what Italy’s economy will look like once he consolidates power. It’s inevitable anyway, and that would likely be preferable to a muddle-through scenario that sees him oust Tria and continue to bicker with Luigi Di Maio in perpetuity.
Speaking during a speech on Wednesday evening, Salvini said this of Di Maio and Conte:
Like in marriage, if you spend more time quarreling and trading insults rather than making love, it’s better to look each other in the eyes and take an adult decision.
I love the smell of right-wing populism in the morning.