The crisis will not be resolved with a populist or anti-EU option, says Italia Viva

LONDON – Italy’s latest political crisis will not ultimately lead to the installation of a populist or anti-EU government in Rome, a former minister told CNBC as the country seeks a new administration amid a pandemic.

Italy faces new political uncertainty after former Prime Minister Matteo Renzi backed his support for the current coalition government. His small party, Italia Viva, had supported the Five Star Movement and the Democratic Party, two pro-EU parties, which have ruled since the summer of 2019.

However, differences over how to spend the next European recovery funds caused Renzi to withdraw his support and cause the resignation of two ministers from Viva Italia. It included Elena Bonetti, the former Minister of Family and Equal Opportunities.

“What we are unwilling to do is forge an alliance with a populist, anti-European right-wing government,” Bonetti told CNBC’s Joumanna Bercetche when asked about possible government formations in the future.

The three-party alliance was vital in keeping anti-EU politicians out of government during a previous political crisis in the summer of 2019. But support for anti-immigration and anti-EU parties is strong in Italy, where Lega and the brothers of Italy survey first and third, respectively at this time.

“We believe that we must firmly place Italy’s future prospects firmly in a European context. Therefore, there will be no populist or anti-European decisions,” Bonetti said.

Financial markets have reacted in the past to comments from anti-EU politicians in Italy who have suggested, for example, that the country would be better off outside the eurozone, the 19-member region of Europe where countries share the same currency. .

The latest crisis has led to an increase in the yield on the ten-year Italian benchmark bond over the past week, but overall the impact on the market has been somewhat limited.

The European Central Bank is making massive purchases of government bonds due to the pandemic and the European Union must launch an unprecedented level of fiscal stimulus across the region. Monetary and fiscal responses have reduced borrowing costs for European governments.

But the Italian political crisis comes at a particularly difficult time, with the number of Covid-19 infections showing no signs of slowing down and economic damage that could see a 10% contraction in GDP (gross domestic product) by 2020.

Prime Minister Giuseppe Conte will have to address the current crisis next week, but it is still unclear whether he will maintain his position and which parties could meet to form a new government.

“Conte could take a while to reflect on his decision as he tries to find enough lawmakers from other parties to fill the gap left by Renzi’s party,” Wolfango Piccoli, co-chair of research firm Teneo, said in a statement. suggesting that the current crisis may drag on for some time.

There are three main options for resolving the impasse: a new coalition government, perhaps with a different prime minister; a government formed mainly by people without political affiliation but with key technical knowledge; or early elections, which the ruling parties want to avoid.

“We continue to think that Conte is likely to stay in the lead,” said Federico Santi, a senior analyst at consulting firm Eurasia Group, in a note, which assigned a 40% probability to that scenario.

He also said that “quick elections remain unlikely for now,” but if they did occur, the ruling parties would likely suffer serious setbacks in the event of an election, which will likely pave the way for a right-wing Eurosceptic government. “