D-Day For Italy Talks On New Government

Italy faces further fraught negotiations Wednesday to form a new government or risk fresh elections in the eurozone's third largest economy

Rome, (APP - UrduPoint / Pakistan Point News - 28th Aug, 2019 ) :Italy faces further fraught negotiations Wednesday to form a new government or risk fresh elections in the eurozone's third largest economy.

President Sergio Mattarella is to meet the main political parties at the climax of what Italian newspapers have dubbed "the craziest crisis ever" after the government collapsed earlier this month while parliament was on holiday.

The anti-establishment Five Star Movement (M5S) and the centre-left Democratic Party (PD) have been trying to form a new workable coalition, despite having been bitter enemies until just a few weeks ago.

After a day of rollercoaster talks Tuesday, the two sides appeared on the brink of clinching a deal Wednesday.

Italy's 10-year bond yield fell to a record low -- below 1 percent, reflecting investor confidence -- as hopes of an accord grew.

M5S leader Luigi Di Maio said late Tuesday that should a deal be reached it would still have to be approved by party members in an online vote that would take place before the end of next week.

"Only if the vote is positive will the M5S support the proposed government project," he said.

- 'Markets will cheer' - The clock is ticking to ease the political turmoil, with Italy -- grappling with a huge debt mountain -- under pressure to approve a budget in the coming months.

If it fails to do so it could face an automatic rise in value-added tax that would hit the poorest families the hardest and could plunge the debt-laden country into recession.

"Markets will likely cheer the (M5S-PD) partnership... as it avoids an election and possibly a long stand-off with Brussels later this year around the budget," said Craig Erlam, senior market analyst at OANDA.

All the main parties have been summoned to report back to Mattarella on Wednesday.

He has insisted that the crisis be resolved quickly, though he could give parties a bit more time for last-minute wrangling.

If the PD and M5S cannot form a solid majority, the president is expected to call an early election for November.

A return to the polls will likely favour strongman Matteo Salvini, who triggered the crisis on August 8 when he withdrew his far-right League party from the governing coalition with M5S.

Salvini has said he hopes Mattarella will not allow the "horse-trading to go on much longer", accusing the PD and M5S of spending their time "negotiating ministries" rather than working out a plan for the country.

- Possible 'serious problems ahead' - Political watchers have also warned a M5S-PD deal could favour Salvini in the end, should the hastily forged accord come undone at the seams over the coming month.

Both the Movement -- which had sworn never to ally with traditional parties -- and the centre-left could lose support for getting into bed with the perceived "enemy".

Should that happen, Salvini "will be well placed to swoop to power when the Italian economy hits what the German IFO survey, and the yield curve, are flagging as serious problems ahead," said Michiel van der Veen from Rabobank.

A key sticking point in the PD-M5S courtship appeared to be what cabinet role to offer the Movement's leader Luigi Di Maio, who held the deputy prime minister and economic development minister posts in the moribund coalition.

Di Maio is reported to be demanding the deputy prime minister post in a new coalition -- something the centre-left party has so far ruled out.

The parties bickered Monday and Tuesday over whether outgoing Prime Minister Giuseppe Conte -- a soft-spoken former academic chosen as a compromise prime minister last year -- should lead a new coalition.

But the centre-left party appeared to have had a change of heart -- news which cheered not only the M5S but also US President Donald Trump, who enthusiastically gave Conte his endorsement on Twitter.