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30 May

News and Analyses, A Foreign Perspective

News and Analyses, A Foreign Perspective

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World Politics

Italy

A bitter row over the country’s future in the eurozone had divided populist parties

Luigi Di Maio

The Five Star Movement head, Luigi Di Maio, said he will compromise on his choice of finance minister but will stick with his pick for prime minister. Photograph: Ivan Romano/Getty Images

The head of Italy’s anti-establishment Five Star Movement has rekindled negotiations to form a government, days after a bitter row over the country’s future in the eurozone ended a fledgling deal for populist parties to take power.

Luigi Di Maio, the 31-year-old head of M5S, Italy’s largest party, indicated on Wednesday he was prepared to compromise on his controversial choice of a eurosceptic economist, Paolo Savona, for finance minister. But he insisted that his pick for prime minister remained political newcomer Giuseppe Conte.

In the absence of an agreement between Di Maio , the president of Italy, Sergio Mattarella, and the far right leader Matteo Salvini, Di Maio said he favoured snap elections.

“There are two paths ahead. Either we launch the Conte government with a reasonable solution or we vote right away,” he said.

Italian markets, which have been hit hard by the political crisis, rallied on the news of a potential new deal, which would at least temporarily put plans for a new election on hold.

While markets have also been worried about the prospect of a populist government taking over the eurozone’s third-largest economy, the new government that would be formed between an alliance of the M5S and the far-right League would have a relatively narrow majority in the Italian Senate, limiting their ability to take any dramatic action.

But the promise of a new government was hit by complications almost as soon as it was floated. Salvini, the bombastic and xenophobic head of the League, who has proposed plans to detain and deport hundreds of thousand of migrants as part of his election campaign, indicated he still favoured snap elections.

“Di Maio is open [to a deal]? We are not at the market. Let’s go vote right away. We have tried to do a government but it is never good enough for Mattarella, so then you give up. The president should explain how we get out of this impasse,” Salvini said.

The latest development was another twist in a complicated tangle of news as the parties have tried and failed, several times, to reach a power-sharing deal.

The M5S and the League are Italy’s biggest populist parties, but differ significantly on policy. An agreement reached earlier this month for a shared agenda was focused on plans to increase spending, slash taxes, and take a far tougher approach on migration than the previous centre-left government, including the creation of new detention centres across Italy.

Di Maio and Salvini reached a deal to nominate Conte to serve as prime minister last week, even though the law professor has no political experience. Mattarella agreed on the choice, despite questions over whether he had padded out his CV.

But the president on Sunday night vetoed the populists’ choice of Savona as finance minister, saying the nomination would send a message to markets and investors that Italy was prepared to default on its obligations to Brussels and might even contemplate an exit from the eurozone. Leaving the euro, Mattarella said, posed a risk to all Italians and their financial security.

It was a controversial move, with both Di Maio and Salvini arguing that Mattarella had overstepped his constitutional authority and made a political decision, even though he is meant to be apolitical. However presidents have the constitutional authority to block such nominations, and have done so in the past.

Shares in New York and Asia fall sharply as investors and EU politicians take fright at strengthening mood against euro

in Rome, in Brussels and

Italy risks careening into a new financial crisis after the Bank of Italy said the country’s leaders could not “disregard” financial constraints and its commitments to Brussels.

Markets around the world were also shaken with the Dow Jones industrial average in New York falling almost 400 points, or 1.58% on Tuesday as investors shifted money into the safe haven of US bonds, putting pressure on bank shares.

Stock markets in Asia also dropped sharply at the opening of trade on Wednesday. The Nikkei in Tokyo was off 1.3% while the ASX200 in Sydney fell 0.6%. The Kospi index in Seoul was down 1.57%.

Escalating worries that Italians may be poised to take a tougher stand against the euro prompted a round of accusations and finger-pointing among EU officials, including a rare admonishment by Donald Tusk, the European council president, who said EU institutions needed to show “respect to voters” in Italy.

“We are there to serve them, not to lecture them,” Tusk said after the German budget commissioner, Günther Oettinger, had suggested the market turmoil in Italy would show voters the dangers of supporting populists.

Ignazio Visco, the Bank of Italy chairman, said the country was at risk of losing the “asset of trust” with investors. On Tuesday the Italian bond spread, a leading indicator of investor concern, rose to its highest level in four years.

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