Italy heading for another government crisis

The pan-populist government in Italy is once again in crisis – perhaps its most serious. According to media reports, Interior Minister and Lega leader Salvini as well as President Mattarella met on Friday to discuss the future of the coalition. While Mattarella Salvini is pushing for a quick decision, he is probably planning a meeting with five-star boss di Maio today. In addition to the option of new elections in autumn, a replacement of Contes as head of government and Finance Minister Tria could also be discussed.

The current dispute was triggered by reports of alleged party donations from Russia, which the Lega is said to have received. The government in Rome does not speak with one voice on European policy either. While members of the five-star movement (M5S) have voted for the candidate for the post of President of the European Commission, von der Leyen, according to their own statements, Lega representatives have refused their approval for the Christian Democrat. Neither of these has done political harm to the Lega to date, which in the election polls is increasingly gaining ground at the expense of the M5S.

Nevertheless, Salvini has so far been reluctant to tackle new elections. While he can distinguish himself as interior minister by an „anti-migration policy“, the responsibility as head of government would be much greater. As an alternative to new elections, Salvini is obviously considering the replacement of Contes, as both have recently been politically crossed on several occasions. Salvini calls for a more expansionary fiscal policy and would therefore like to be significantly involved in the drafting of the 2020 budget, while Conte and Tria rather seek consensus with the EU.

Both new elections, from which the Lega would very probably emerge as a winner, and a continuation of the coalition under a new head of government who would approve the Lega, would not be good news from the point of view of the financial markets. So far, investors have relied mainly on Conte and Tria, who recently managed to avert an EU lawsuit against Italy for excessive overall debt. Particularly in the direction of September, when the draft budget for 2020 is to be negotiated, the conflicts between Rome and Brussels threaten to increase significantly.

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