the crisis will not be remedied by a populist or anti-EU election, says Italia Viva

LONDON – Italy’s latest political crisis will not eventually lead to the installation of a populist or anti-EU government in Rome, a former CNBC minister said as the country seeks a new administration amid a pandemic.

Italy is facing new political uncertainty after former Prime Minister Matteo Renzi drew support for the current coalition government. His small party – Italia Viva – has supported the Five Star Movement and the Democratic Party, two pro-EU parties that have been in power since the summer of 2019.

However, differences over how to spend future European recovery funds led Renzi to withdraw his support and provoke the resignation of two Italia Viva ministers. This included Elena Bonetti, the former Minister for the Family and Equal Opportunities.

“What we don’t want to do is form an alliance with a populist, anti-European right-wing government,” Bonetti told CNBC’s Bonetti Joumanna Bercetche when asked about possible future government formations.

The three-party alliance has been vital in keeping anti-EU politicians away from the government during a previous political crisis in the summer of 2019. But support for anti-immigration and anti-EU parties is strong in Italy, where Lega and Italy’s brothers are polling. the first and the third, respectively, at this time.

“We believe that we must firmly place Italy’s prospects in a European context. So there will be no populist or anti-European elections,” Bonetti said.

Financial markets have reacted in the past to comments from anti-EU politicians in Italy who have suggested, for example, that the country would be better off outside the eurozone – the 19-member region of Europe, where countries have the same currency.

The most recent crisis has led to an increase in the yield on the 10-year Italian benchmark bond in the last week, but overall the impact on the market has been somewhat limited.

The European Central Bank is making massive purchases of government bonds due to the pandemic, and the European Union is set to launch an unprecedented level of fiscal stimulus across the region. Monetary and fiscal responses have reduced the costs of borrowing for European governments.

But the Italian political crisis is coming at a particularly difficult time, with the number of Covid-19 infections showing no signs of slowing down and economic damage that could reduce the contraction in GDP by 10% (gross domestic product) by 2020.

Prime Minister Giuseppe Conte is due to address the current crisis next week, but it is still unclear whether he will retain his position and which parties could meet to form a new government.

“Conte could take some time to meditate on his move as he tries to find enough MPs from other parties to fill the gap left by Renzi’s party,” said Wolfango Piccoli, co-chair of research firm Teneo, suggesting the crisis current could shoot for some time.

There are three main options for resolving the stalemate: a new coalition government, perhaps with a different prime minister; a government made up mainly of people without political affiliation but with key technical knowledge; or quick elections, which the governing parties want to avoid.

“We continue to believe that Conte will likely remain in the lead,” Federico Santi, a senior analyst at consulting firm Eurasia Group, said in a statement, giving the scenario a 40 percent chance.

He also said that “early elections remain unlikely for the time being”, but if that happened then, “the ruling parties will probably face serious obstacles in the elections, which will pave the way for a right-wing Euroceptic government.”