A dispute rarely comes alone

The political dispute within the tripartite alliance in Italy threatens to escalate. For days now there has been disagreement between the government and the Five-Star Movement (M5S), which is part of the government, about the reform of the ESM. However, cracks are now opening up within the government as well. The dispute revolves around the procedure regarding the use of the money that Italy is expected to receive from the EU reconstruction fund. Specifically, Prime Minister Conte plans that the use of the funds will be coordinated primarily by him and Finance Minister Gualtieri, and both will be supported by managers with comprehensive powers. The remaining members of the cabinet, especially those from Italia Viva and the PD, view this as an affront and also take their criticism to the public.
The strongest criticism currently comes from the small government partner Italia Viva. Former Prime Minister Renzi is demanding that Conte completely abandon his plans for a „parallel cabinet“. His party is not prepared to compromise on this issue and would otherwise vote against the budget law. Although Renzi does not threaten to explicitly break the coalition, the prime minister would be seriously damaged if he lost the trust of the parliamentary majority in the midst of the Corona crisis. If the current dispute within the government can be successfully resolved, it is nevertheless clear that the three-party alliance is increasingly standing on shaky ground. Conte’s plan deliberately aimed to depoliticize concrete decisions on the use of funds. If the decisions were to be made by the entire government after all, this would possibly result in new potential for conflict. It is also to be feared that stronger political influence will reduce the efficiency of the use of funds.
Shortly before the upcoming ECB Council meeting, the market is still largely ignoring the upcoming political storm in Rome. However, if the situation escalates or even the coalition breaks up, uncertainty could increase and higher market risks could be reflected. However, the extensive bond purchases by the ECB continue to speak against sustained excessive risk premiums.

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