The Italian prime minister answers questions during the end-of-year press conference.
Alessandra Benedetti – Corbis | Corbis News | Getty Images
Italy is on the verge of another political crisis, while members of the coalition government are questioning the prime minister’s plan for the country’s economic recovery.
The southern European nation is no stranger to political conflict; tensions, scandals and small majorities have led to more than 60 governments since World War II. However, the latest political dispute comes at a particularly painful time, with the number of coronavirus infections and deaths among the highest in Europe to date, and its gross domestic product (GDP) estimated to have fallen by about 10 % in 2020.
“In the most likely scenario, the crisis will lead to the formation of a new executive,” Wolfango Piccoli, co-chair of consulting firm Teneo, said in a note on Monday.
Prime Minister Giuseppe Conte has been in power since June 2018, but he is already leading the second government after a political dispute in the summer of 2019 culminated in a new left-leaning coalition of the Democratic Party and the Five Star Movement. another left-wing party in government.
The Gordian knot is how to spend EU funds and whether to allocate them to new or pre-existing projects.
Alberto Alemanno
Professor, HEC Business School
The latest challenge brings Conte, without political affiliation, against former Prime Minister Matteo Renzi, who left the Democratic Party in September and created his own group called Italia Viva, which supports the coalition and has two ministerial posts. However, Renzi threatens to withdraw support for the current executive, arguing that Conte’s plan for economic recovery is not ambitious enough.
The European Union has agreed to exploit financial markets in search of € 750 billion ($ 920 billion), which will be invested in the 27 nations to help them recover their economies after the coronavirus pandemic.
Italy is one of the main beneficiaries of these funds, expecting around € 208 billion in grants and low-interest loans. However, the challenge is how to make the most of this money, given that Italy has the second largest pile of public debt in the EU and its economy is already struggling before the pandemic.
“The Gordian knot is how to spend EU funds and whether to allocate them to new or pre-existing projects. While the former would further increase the high Italian public debt, the latter would reduce the positive impact of EU financial support,” Alberto Alemanno said. EU law professor at HEC Paris Business School, he told CNBC on Tuesday.
Experts such as Piccoli, from Teneo, believe that the dispute “will come to an end later this week, when Conte will present the revised economic recovery plan to the cabinet for approval. The trigger for the formal opening of the crisis could be the refusal of the two ministers of Italia Viva. to approve the plan “.
“While Italia Viva is just a junior partner in the ruling coalition, the figures are so tight in parliament, especially in the Senate, that by withdrawing its support it can trigger a vote of confidence in the prime minister,” he added.
Ignazio Corrao, an independent Italian parliamentarian in the European Parliament, told CNBC on Tuesday that quick elections could be avoided and that there would either be a new prime minister or a cabinet reshuffle.
Renzi “must use all the political means he has now … to have power in the future,” Corrao said, suggesting that the political dispute could be a tactic for Italy Viva’s newly formed party to gain more ground.
The yield on the 10-year Italian bond rose slightly this week as markets opened in the first trading days of 2021 and behind the political situation. However, yields are still trading at low levels, at around 0.532% due to the large amount of monetary and fiscal incentives in Europe.