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Lega leader’s call for fresh election takes gloss off Italian recovery

Key Points
  • Rome's power struggle has rattled global financial markets in recent days.
  • Yields on the politically sensitive 2-year Italian bond have swung wildly.
  • A Wednesday recovery in equities has been tempered by calls for a new election.
Matteo Salvini leader of Lega Nord party speaks during the Lega Nord demonstration in Piazza Duomo on February 24, 2018 in Milan, Italy.
Pier Marco Tacca | Getty Images Europe

A recovery in Italian stocks has been slowed by news that the leader of the right-wing Lega party has called for a new election.

Matteo Salvini said Wednesday that he wanted new elections in Italy "as soon as possible."

Salvini added that holding a fresh vote in late July would be disruptive for many Italians, but he noted that "the earlier we vote, the better, because it's the best way to get out of this quagmire and confusion."

Italian stocks had been in full recovery mode in early trading Wednesday after reports that Prime Minister-designate Carlo Cottarelli has been holding further talks with President Sergio Mattarella about a new technocratic government.

Assets were also boosted by reports that the populist Five Star Movement (M5S) was re-igniting talks to form a coalition with Lega. The two parties failed in their first attempt at the weekend when Mattarella rejected the appointment of an 81-year-old euroskeptic as their proposed finance minister.

Italy's President Sergio Mattarella talks to journalists after Italy's designated Prime Minister Giuseppe Conte returned the mandate to form a new government, on May 27, 2018 in Rome, Italy.
Alessandra Benedetti | Corbis | Getty Images

The FTSE MIB in Milan see-sawed in Wednesday morning trade and at around 1 p.m. CET (7 a.m. ET) was up by around 1.3 percent. Italy's top stocks had slipped more than 4 percent this week, before the start of Wednesday trade.

The Italian bond market has steadied after the politically sensitive two-year yield recorded its biggest spike since 1992 amid concerns over a fresh election. The yield opened at 2.73 percent on Wednesday and rose to 2.91 before falling to trade at around 1.78 percent at 1 p.m. CET. Prices move inversely to yield.

The Democratic Party in Italy has also urged President Mattarella to send the country straight back to the polls, insisting that it would not back a technocratic government led by Cottarelli.

Speaking to CNBC on Wednesday, Sandro Gozi, Democratic Party member and deputy secretary of state for political and European affairs, said it was time to end the confusion created by Lega and M5S.

"One day they want elections, one day they want to impeach Mattarella and the next they want to work with Cotarrelli. Uncertainty is always bad and the sooner we get political clarification, the better," he said.

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Italian lawmaker: Germany has responsibility for the current state of the EU

Gozi also took a swipe at outside influence, claiming that the Italian political crisis was "mainly due" to ineffective European policy. The democratic politician, normally considered a pro-European voice, was particularly critical of Germany.

"It is time for fundamental European reform and the first one to understand this must be our German friends in Berlin. Germany has huge responsibility for the state of Europe today because Berlin has always postponed the reform which was urgently needed," he said.