End Game Finally Comes In Italy As Conte Resigns, Salvini Seeks Premiership

It’s over for Giuseppe Conte. Italy’s Premier will submit his resignation to President Sergio Mattarella on Tuesday. 

Months of bickering within the star-crossed populist coalition came to a boil earlier this month when Matteo Salvini pulled the plug on League’s fractious coalition with Five Star, making new elections the most likely outcome.

Infighting has plagued the alliance all year and once the results of the EU election confirmed League’s standing as the dominant political force, the clock started ticking. It ran out in August.

In remarks to the Senate on Tuesday, Conte lambasted Salvini, blaming the right-wing firebrand for the latest flareup in the country’s rolling political crisis. Conte characterized Salvini’s power grab as an irresponsible personal pursuit and chastised Matteo for violating the government contract and undermining a coalition that was getting things done.

Ironically, Salvini habitually cited the lack of movement on key initiatives as the proximate cause for his impatience with Five Star and Conte. In other words, he’ll doubtlessly say that it was Luigi Di Maio and Conte who were incapable of getting results for Italians.

As we’ve repeatedly noted in these pages, this isn’t necessarily the worst thing for holders of Italian assets. In addition to being preferable to any muddle-through scenario, Salvini’s economic agenda is arguably more market-friendly than a situation where Five Star’s expensive electoral promises have to be fused to League’s platform.

Salvini’s demands for tax cuts and affinity for Trump-style stimulus could be seen as a positive development. That said, his belligerent attitude towards Brussels, blatant disregard for fiscal constraints and hardline immigration stance set the stage for bitter clashes with EU authorities. Salvini also has a pernicious habit of hinting at leaving the euro from time to time, which is something no investor wants to hear about.

10-year Italian yields are lower by 11bps on Tuesday, perhaps suggesting the bond market is more than fine with elections. Italian financials, however, are another story – they’re down sharply, which is odd considering Italian banks are large holders of BTPs.

“Whatever happens, I wanted to tell you that it was an honor to work together in this government”, Di Maio told Conte.

Salvini will, of course, seek the premiership, although he made an appeal to Five Star during his own speech to lawmakers. “If you want to complete the path of reforms, we are there. Then we can go to the polls”, Salvini told his former coalition partners, before delivering a pseudo-warning. “If you want to govern with [Former Premier] Renzi, good luck”.

A potential alliance between Five Star and the Democratic Party would perhaps delay budget wrangling and could be seen as market-friendly in the near-term.

Read more: Trump-O-Nomics, Italian Style


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