Italian President appoints caretaker technocrat after coalition of populists collapses
Italian President Sergio Mattarella today asked former International Monetary Fund (IMF) official Carlo Cottarelli to form a government, paving the way for a return to technocratic rule and new elections after August.
The Prime Minister designate is unlikely to be able to form a parliamentary majority, given the dominance of the anti-establishment Five Star Movement and the right-wing Northern League, meaning it would have only a caretaker role until new elections are held.
“In the absence of (parliament’s) confidence, the government would resign immediately and its main function would be the management of ordinary affairs until elections are held after the month of August,” Cottarelli said, according to Reuters.
Cottarelli was asked to form the government after Mattarella vetoed the appointment by a coalition between the two populist parties of a veteran eurosceptic as economy minister, following talks since inconclusive March elections. Cottarelli, a London School of Economics alumnus who headed the IMF’s fiscal affairs department until 2013, is highly unlikely to gain the backing of one of the parties necessary to form a majority government.
Markets appeared to welcome the collapse of a potential coalition between two populist parties with strong eurosceptic leanings, but the prospect of an election which will have EU and euro membership as a central issue will likely continue to trouble investors.
The euro earlier rebounded after hitting a six-month low at the end of last week, although it gave up most of the gains as trading continued to trade at $1.165 against the US dollar, having earlier in the day reached $1.1728.
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The populist Five Star Movement and the right-wing Northern League had agreed to form a government based on their common anti-establishment stance, in spite of major political differences.
However, the Prime Minister designate, Giuseppe Conte, yesterday said he had “returned the mandate” to form a government offered by Mattarella after the President vetoed the appointment of a veteran eurosceptic as economy minister.
Matarella said he could not allow an economy minister who wants Italy to leave the Eurozone, reassuring investors who fear the exit of one of the single currency’s most important members.
The yield on the Italian 10-year government bond fell back to below 2.35 per cent in early trading as investors greeted the collapse of the potential coalition, before spiking to above 2.7 per cent, according to Tradeweb. At the time of writing the yield had fallen back to below 2.6 per cent.
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The spread between Italian and German 10-year yields – a measure of the premium investors demand which is highly sensitive to political risks – fell back below 200 basis points on Monday morning, but widened to over 230 basis points in late morning trading before tightening once more.
The moves come after a month in which the price of Italian government bonds, which move inversely to yields, has fallen dramatically following fears a high-spending and eurosceptic government could endanger the Italian economy and the Eurozone.
The President’s refusal to ratify the coalition cabinet could put Italy on track for yet another election, continuing the political deadlock in the country. However, markets have in the past welcomed technocratic governments in Italy.
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