Italy’s Five Star and League parties reach deal to form government

Italy’s anti-establishment Five Star Movement and the far-right League clinched the approval of Sergio Mattarella, the president, for the launch of a populist government, all but ending the political crisis that has gripped the country and spooked investors.

At a meeting at the Quirinal Palace in Rome on Thursday, Giuseppe Conte, the designated prime minister for the alliance, presented to Mr Mattarella with a list of ministers which includes technocratic academics and politicians from both parties in key positions. The selections were accepted by the Italian president, and the new government is expected to be sworn in at 4pm on Friday.

Giovanni Tria, a professor of political economy at Tor Vergata University in Rome, will be minister for finance, while Paolo Savona, who had been controversially blocked by Mr Mattarella for the finance job last Sunday, will be minister for EU affairs. Enzo Moavero Milanesi, a former aide to former prime minister Mario Monti, will be foreign minister.

Luigi Di Maio, the Five Star leader, will be vice-premier and minister of labour and economic development, including trade policy. Matteo Salvini, the head of the far-right League, will be minister for the interior and in charge of immigration.

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“An accord has been reached for a political government,” said Matteo Salvini, the League’s leader, and Luigi Di Maio, head of Five Star, in a joint statement.

A prior deal between the parties, also with Mr Conte as premier, collapsed in acrimony on Sunday over composition of the cabinet, which was rejected by Mr Mattarella.

Striking a deal

Officials from both parties had been optimistic that a new pact could be sealed. Although Mr Salvini had been more reluctant to strike a deal, preferring fresh elections.

Mr Mattarella gave both men extra time on Wednesday to reach agreement despite the political crisis having lasted nearly three months, the longest in the country’s postwar republican history.

Earlier in the week the president had lined up a technocratic government led by former IMF official Carlo Cottarelli to take over if Mr Di Maio and Mr Salvini failed to reach a deal.

However Mr Cottarelli met Mr Mattarella on Thursday night and formally relinquished his own mandate to become prime minister.

Investors have been anxious for Italy to avoid an even longer political stalemate that could lead to fresh elections which could have turned into a de facto referendum on Italy’s ties with the euro zone.

Hopes that Five Star and the League might overcome their differences and avoid a fresh election pushed Italian assets higher for the second straight day.

The yield on the country’s two-year bond dropped 95 basis points during the day to 1.04 per cent. It had climbed as high as 2.73 per cent earlier this week in a surge triggered by political worries. Yields fall when prices rise.

The last-ditch talks between Mr Salvini and Mr Di Maio addressed the make-up of the cabinet, which remained a big sticking point.

Mr Conte, the little-known lawyer and academic originally tapped to be prime minister of the Five Star-League coalition last week, travelled to Rome and joined talks between Mr Di Maio and Mr Salvini.

Brothers of Italy

Meanwhile a further complication arose as Brothers of Italy, another far-right party aligned with the League on many issues, moved to join the Five Star-League alliance on Thursday, after having vowed to stay in opposition.

While this would reinforce the majority in parliament and strengthen the government, some Five Star politicians balked at the idea because Brothers of Italy was not a party to the common platform it agreed with the League. Ultimately Giorgia Meloni, the Brothers of Italy leader, said her party would support the government on a case-by-case basis but not be part of the executive branch.

Powerful forces within Mr Salvini’s base were still arguing against a deal on Thursday. – Copyright The Financial Times Limited 2018