Italy’s government risks break as coalition ally set to quit

ITALY’S Five Star Movement will refuse to back Mario Draghi’s government in a confidence vote on Thursday (Jul 14), raising the prospect that the prime minister could offer to resign in a move triggering political turmoil.

Giuseppe Conte told lawmakers late on Wednesday that his Five Star party, the second-biggest group in Draghi’s coalition, would boycott the Senate vote, which the government will call over an aid package. Draghi signalled that he would resign if Conte walked out on the ballot.

Investors rushed to offload holdings of Italian debt, pushing the 10-year yield higher by as much as 24 basis points to 3.39 per cent. This widened its premium over German peers — a closely watch gauge of risk in the region — to as far as 214 basis points, the most in a month.

European Union Commissioner Paolo Gentiloni, a former premier of Italy, said the EU is concerned by the Italian situation.

The turbulence comes as Europe grapples with an energy crunch caused by Russia curtailing gas exports amid its invasion of Ukraine, stoking fears of a recession. The EU, whose industries are heavily dependent on Russian gas, is poised to cut growth forecasts for the euro area this year and next.

Draghi, who has been leading Italy’s technocratic government since early 2021, is expected to meet President Sergio Mattarella on Thursday afternoon, and could offer his resignation. A collapse of the coalition could lead to an early election, but that is an outcome most parties would seek to avoid. 

One option to avoid a government rupture would be for Mattarella to ask Draghi to remain, and to have a round of talks with parties in his alliance to verify whether he still has their support. Draghi could then call for a new confidence vote to gauge his backing.  

All other parties in Draghi’s coalition, including the centre-left Democratic Party, asked for the government to verify support for the coalition.

Five Star’s popularity in Italy has been dwindling ever since it joined Draghi’s coalition, and Conte has been under pressure from his lawmakers to abandon it. 

SEE ALSO

EU cuts eurozone growth forecasts, revises up inflation outlook

Conte has been increasingly critical of the government, saying it has not put enough money on the table to help businesses and households hit by high energy prices. He has also called for Rome to expand its deficit — a possibility Draghi has ruled out for now — and has blasted a measure to install a waste incinerator in the Italian capital.

While backing from other large parties, including the Democrats and the League, means that Draghi will win the Senate vote, the decision to walk out upsets the political balance. The League’s Matteo Salvini, who is also critical of the government, called for early elections and reaffirmed his party’s alliance with Silvio Berlusconi’s Forza Italia.

For months, Draghi has been under pressure from several parties in his broad alliance who wanted him to soften reforms and possibly reshuffle the cabinet. BLOOMBERG