Italy's M5S seals deal with PD for new coalition

by Ella IDE
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The leader of Italy's Democratic Party Nicola Zingaretti, Italian Prime Minister Giuseppe Conte and deputy PM Luigi Di Maio

Italy's anti-establishment Five Star Movement and the centre-left Democratic Party clinched a deal Wednesday to form a new government and stave off elections in the eurozone's third largest economy, though some uncertainties remained.

Five Star (M5S) said the coalition would be led by outgoing prime minister Giuseppe Conte, who had resigned following the collapse of the populist government earlier this month.

The deal between two historic enemies is set to put an end to what Italian newspapers have dubbed "the craziest crisis ever".

Italy's President Sergio Mattarella summoned Conte for 0730 GMT Thursday, at which point he is expected to give him a mandate to form a government.

Once Conte is sure he has a working majority, the new government will face a confidence vote in parliament.

M5S head Luigi Di Maio told journalists at the presidential palace in Rome that the endorsement Tuesday of Conte by US President Donald Trump "had shown us we were on the right path".

The parties had been bickering over whether Conte -- a soft-spoken former academic chosen as a compromise prime minister last year -- should lead a new coalition or whether a fresh face would better signal a fresh start.

Italy's 10-year bond yield had fallen to a record low Wednesday as hopes of an accord grew.

There was talk in markets of "a pro-European government with a finance minister from the Democratic Party, which would be pro-market and pro-EU", said Aurelien Buffault, head of bond operations at Meeschaert Asset Management.

This was seen as "very positive" and explained why investors were piling into Italian government debt, he told AFP.

Di Maio has warned however that any deal with the Democratic Party (PD) would still have to be approved by party members in an online vote.

- 'Anything can happen' -

Lorenzo Castellani, political science professor at Rome's Luiss university, told AFP that some "obstacles" to the new government had yet to be overcome, from the division of cabinet posts to the M5S online vote.

If the Movement's online members "should vote against the deal... it would spark a very serious diplomatic incident", he said.

"In Italy, anything can happen right up until the confidence vote in parliament," he said.

Castellani said the vote on the M5S's "Rousseau" platform could take place as soon as Friday.

Political watchers have warned some in the Movement's base may attempt to thwart an alliance with the "enemy".

The clock has been ticking to ease the political turmoil, with Italy -- grappling with a huge debt mountain -- under pressure to approve a budget in the coming months.

If it fails to do so, it could face an automatic rise in value-added tax that would hit the poorest families the hardest and could plunge the country into recession.

Had the PD and M5S been unable to form a solid majority, the president would likely have called an early election for November.

Far-right leader Matteo Salvini, who triggered the crisis on August 8 when he withdrew his League party from the governing coalition with M5S, said the new set-up would be fragile and unlikely to last.

"So we have to wait six months or a year to win? We're in no hurry," he said.

Analysts have warned a M5S-PD deal could favour Salvini in the end, should the hastily forged accord come undone at the seams over the coming months.

Both the M5S -- which had sworn never to ally with traditional parties -- and the centre-left could lose support for getting into bed with a former foe.

Should that happen, Salvini "will be well placed to swoop to power when the Italian economy hits what the German IFO survey, and the yield curve, are flagging as serious problems ahead," said Michiel van der Veen from Rabobank.

The leader of Italy's Democratic Party Nicola Zingaretti, Italian Prime Minister Giuseppe Conte and deputy PM Luigi Di Maio

The composition of Italy's lower house as the Five Star Movement and the Democratic Party try to form a new coalition

President Sergio Mattarella has insisted the crisis be resolved quickly

Key Italian economic indicators as the eurozone's third-largest economy goes through a political crisis