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Italy elections look likely as experts cast doubt on a new left-wing alliance

Key Points
  • Prime Minister Giuseppe Conte resigned earlier this week as a fragile coalition between the anti-immigration Lega party and the M5S finally cracked.
  • The country's future is now in the hands of Mattarella who is holding consultations to see whether any parties can form a majority — with an M5S-PD pact looking the most likely at this stage.
  • In a fiery speech inside the Senate chamber earlier this week, Lega's Matteo Salvini had accused other Italian politicians of cowardice by seeking to avoid the Italian electorate as soon as late October.
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Italian lawmakers to establish new coalition

Italy's anti-establishment Five Star Movement (M5S) has issued a long wish list of requirements for any new government coalition during talks with President Sergio Mattarella, after the center-left Democratic Party (PD) extended its own set of demands for any tie-up with the populist group it has criticized and bitterly opposed for the best part of a decade.

Prime Minister Giuseppe Conte resigned earlier this week as a fragile coalition between the anti-immigration Lega party and the M5S finally cracked. The country's future is now in the hands of Mattarella who is holding consultations to see whether any parties can form a majority — with an M5S-PD pact looking the most likely at this stage.

The unlikely alliance would in theory enjoy a relatively comfortable majority in the parliament's lower house, the Chamber of Deputies, but would rely on a handful of sympathetic but unaligned senators if it were to win votes in the upper legislative chamber.

And analysts have said the chance of that stability may have helped Italian bond yields remain relatively subdued this week, but the country's debt pile means investment risks remain high ahead of a review of the country's sovereign debt rating by Moody's in early September.

"This crisis must be solved with a clear and prompt decision," Mattarella said after two days of meetings with each of the country's party leaders. He said this was "necessary for the economic and political uncertainties at the international level," as global growth falls and geopolitical tensions within and beyond Europe remain elevated.

He has given the two parties until Tuesday to try and formalize an agreement that might allow him to anoint a new prime minister to form a government, and thus prevent fresh elections that would take place less than two years since the last national vote.

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But there are indications that caretaker Conte will now struggle to stay in the top job. PD leader Nicola Zingaretti has made clear that he is not prepared to join a new government led by Conte, a former law professor turned premier who enjoys M5S support.

M5S' own litany of requests that party leader Luigi di Maio laid out for Mattarella during consultations at the presidential palace Thursday afternoon included an investment plan for Italy's long-neglected southern Mezzogiorno region, where the party drew much of its support during last March's election.

This may find support from the PD, which says it is seeking a change to Italy's economic policy that will help boost investment.

But the two parties may struggle to agree on parliamentary reform and migration policy, after PD insisted that M5S should agree to repeal migration and security legislation it helped pass during its alliance with the hard-right Lega party during its ill-fated 14-month populist government experiment.

Both sides say they are committed to reaching a deal quickly and will restart bilateral meetings again Friday, but M5S' Di Maio has insisted in an interview with Italian newspaper Corriere della Sera that his party's plan to slash the number of Italy's parliamentary members would not wait.

"It's time to do it now, not tomorrow," he told the newspaper, in reference to plans that would cut the country's national lawmakers by around a third. PD leader Zingaretti has said he would like to see that plan revised if his party was to participate in a new government.

These challenges may prove insurmountable, according to Lorenzo Codogno, a former senior official in the Italian Ministry of Economics, and now an independent consultant. "These two parties have very little in common, and trying to combine different priorities may well result in a patchwork." He said in a research note that he still expects talks will ultimately fail and a fresh election will be called.

Di Maio said his party, which could face a rout in a national vote given recent polls, would "not allow Italians to pay for this crisis." He blamed the recent government collapse on "unilateral" action, a thinly-veiled criticism of his erstwhile partner and fellow deputy Prime Minister Matteo Salvini, who had pushed for fresh elections earlier this month to capitalize on his own Lega party's growing popularity.

In a fiery speech inside the Senate chamber earlier this week, Salvini had accused other Italian politicians of cowardice by seeking to avoid the Italian electorate as soon as late October. But Di Maio insisted an election "doesn't frighten" his party, "but going to vote can't be an escape from the promises made to Italians and we still have many to accomplish."

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