The anti-establishment government in Rome is going through a "honeymoon" phase, with rising popularity, but that will not last longer than two to three months, former Prime Minister Enrico Letta told CNBC on Wednesday.
The coalition between the leftist Five Star Movement (M5S) and the right-wing Lega came to power in early June; it promised to revive the economy by giving more money to the poor and reduce taxes. This, coupled with its strong opposition to receiving more migrants and being subject to tough European fiscal rules, has boosted the popularity of the two deputy prime ministers and party leaders.
At the same time, the opposition parties, including the liberal Partido Democratico, have struggled to fight rising populist sentiment.
"Italy today is living a honeymoon for the present government," Letta told CNBC's Geoff Cutmore. "I think in the next two to three months that honeymoon will change. The key problem is how to have an opposition ready, fresh with some new good ideas and not repetition of the old mistakes."
The Italian government is at odds with the European Commission over its spending plans for 2019. The executive wants to deliver on its campaign promises, but Brussels says these measures risk the stability of the Italian economy.
Italy has the second highest debt pile in Europe and one of the largest in the world at 130 percent of debt to gross domestic product (GDP). The European Commission wants Rome to bring that level down, but it forecasts that the new policy direction will not allow that.
"Italy needs absolutely to find a compromise with Europe, Italy needs to lower the spread, to lower interest rates, if not it will be, I think, a continuous decline in the figure (of GDP)," Letta said. "I strongly hope the government will understand they need to negotiate."
The spat with Europe has sparked concerns in financial markets, which has resulted in higher interest rates for Rome. Investors have become worried that the new government will disrespect European fiscal rules and shake the third largest euro economy.
Giovanni Tria, Italy's finance minister, has told European officials not to worry about the fiscal plans. He promised that by implementing several measures, such as increasing privatizations, Italy will not breach the EU-wide 3 percent deficit rule.
"It is important to know Italy was the country in the '90s and early 2000s that privatized the most in Europe, we had thousands of billions from privatizations. What is today in the hands of the government to privatize is not what you can think… or what the government is presenting," Letta said.
"So it is clear that there is an over-evaluation just for political reasons, just to give the idea that there is room for maneuver but there is not, that's the truth."