- Renzi's move challenges the slim majority the coalition has in Parliament, and raises several questions on how the impasse will be resolved.
- Renzi defected from the Democratic Party in September and created his own group called Italia Viva. However, his party has very little public support for the time being.
- The dispute emerged because Renzi did not agree with how the government was planning to use EU funds to tackle the economic crisis.
LONDON —Italy is embroiled in fresh political uncertainty at a time when it's still struggling with the coronavirus pandemic and the impact on its highly-indebted economy.
Critics have slammed what they call an "irresponsible" attitude by some political figures, who they believe are acting in their own personal interest.
"I am very worried about the situation," was the stark warning from former leader Enrico Letta, speaking to CNBC on Thursday.
Matteo Renzi, another former prime minister, decided to pull his support for the current coalition government on Wednesday.
His small party had backed the Five Star Movement and the Democratic Party — two larger pro-EU groups — in an alliance that has been key in keeping anti-establishment right-wing parties away from power in Rome.
However, Renzi's move challenges the slim majority the coalition has in Parliament, and raises several questions on how the impasse will be resolved.
"It is clear everything is related to (the) personal ambitions of Matteo Renzi and of his party," Letta told CNBC's "Squawk Box Europe."
Renzi defected from the Democratic Party in September and created his own group called Italia Viva. However, his party has very little public support for the time being — with the latest polls giving it only 3% of the votes if an election were to take place now.
Letta also said that the "two happiest people in Italy" now are Matteo Salvini and Giorgia Meloni — leaders of the Euro-skeptic Lega and Brothers of Italy parties, respectively. They currently place first and third in the polls.
The dispute emerged because Renzi did not agree with how the government was planning to use EU funds to tackle the economic crisis.
The European Union agreed to tap financial markets in search of 750 billion euros ($920 billion), which will be invested across the 27 nations to help them rebuild their economies after the pandemic. Italy is one of the main beneficiaries of these funds, expecting about 208 billion euros in grants and low-interest loans.
Francesco Galietti, co-founder of Policy Sonar, a consultancy firm in Italy, said that there have been "many drafts" of the spending plans and the first ones had shown "no sense of strategic priorities at all."
Every EU nation needs to outline its ideas for the recovery funds and these have to be approved by a majority of the European governments before being implemented.
"I think Renzi is going for the jugular of (Prime Minister Giuseppe) Conte now because he senses that the EU is no longer backing Conte. He senses there is a great sense of disappointment vis-à-vis Rome and its handling of the EU recovery funds," Galietti said, adding that Renzi "wants to leverage this."
There are three main options on the table: A new coalition government, perhaps with a different prime minister; a government formed mostly by people without political affiliation but with key technical knowledge, such as former European Central Bank President Mario Draghi; or snap elections, which the governing parties want to avoid.
Galietti said that "if we keep the current coalition … then a reshuffle could be enough (to overcome the impasse) but it must be substantial. So not just a tiny face lifting."
Letta believes that there will be a new coalition government without Renzi, but said that ultimately "all options are on the table."
Forty-six percent of Italians do not understand the reasons behind this new political crisis, a survey published Wednesday by the Italian newspaper Corriere della Sera showed.
The same poll also showed 73% of respondents saying that Renzi is following his own personal ambitions.
Italy has the second-highest public debt pile in Europe, after Greece, and its economy has been severely hit by the pandemic. Forecasts suggest a 10% contraction in GDP for 2020.
It is also one of the European countries with the highest number of infections and deaths from Covid-19.