Italy’s President Mattarella gives ex-PM Giuseppe Conte a mandate to form a new coalition with the opposition Democratic Party – blocking a power grab by League leader Matteo Salvini

• Far-right League leader Matteo Salvini collapsed Italian government this month
• He was hoping to prompt snap elections which polls suggest his party will win 
• But Matteo’s former allies Five Star Movement have now agreed a power-sharing deal with once bitter-rivals the Democratic Party in order to stave off a ballot
• Ex-PM Giuseppe Conte was given mandate to form a new government Thursday

Italian President Sergio Mattarella has given ex-prime minister Giuseppe Conte a mandate to form a new government, following a deal to stave off snap elections.

The anti-establishment Five Star Movement (M5S) and the centre-left Democratic Party (PD), once bitter foes, agreed Wednesday to govern in coalition following the collapse of Italy’s populist government earlier this month.

It comes after Matteo Salvini, leader of the League party, collapsed the government earlier this month in a row over migrants. He was also hoping to cause a snap general election, which polls suggest his party will win.

Conte – a soft-spoken former academic who quit as Prime Minister just last week – conditionally accepted the mandate Thursday. 

Giuseppe Conte, who quit as Italian Prime Minister just last week, was given a mandate to form a new government on Thursday after two once-bitter rival parties agreed to share power

Conte conditionally accepted the mandate, kick-starting days of negotiations between the Five Star Movement and Democratic Party to set out a new government agenda

He will now start talks with parties to try to form a government, and will report back progress to the president. 

M5S chief Luigi Di Maio has said the deal with the PD will have to be approved by his party’s members in an online vote, which could take place by this weekend. 

The crisis was triggered on August 8 when popular far-right leader Matteo Salvini pulled his League party out of the governing coalition with M5S, calling for fresh elections he thought would make him premier.

Mattarella has been racing to find a solution to the political turmoil, with Italy under a huge debt mountain and pressured to approve a budget in the coming months.

Without a new government at the reins 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.

‘The agreement means we won’t have an election in the autumn and any budget confrontation with Brussels later this year may be less fierce than last,’ said Craig Erlam, senior market analyst at OANDA.

The power-sharing deal is designed as a snub to League party leader Matteo Salvini, who collapsed the government in the hopes of causing a snap election which polls say he will win

Luigi Di Maio, leader of the Five Star Movement, said the new new with the FD will have to be put to party members in an online ballot once the terms have been hammered out

‘The two parties still very much have their differences and it’s unlikely to be a harmonious relationship but it will likely be a better match than the last,’ he said.

Investors and markets have welcomed the likely return to political stability in the eurozone’s third largest economy, with Italy’s 10-year bond yield falling to a record low Wednesday. 

But analysts have warned the deal between the M5S – which had sworn never to ally with traditional parties – and the centre-left, which has long loathed it, could quickly crumble.

‘Any new government formed by these unlikely bedfellows has the potential to be a fairly short-lived affair, given that the onus will now fall on a new administration to implement new EU mandated spending reductions of up to 23 billion euros this autumn,’ said Michael Hewson, chief market analyst at CMC Markets UK.

‘These are not expected to be popular and likely to feed into the populist narrative of Matteo Salvini,’ he added. 

The two sides still need to agree on a shared policy platform and team of ministers, but 5-Star chief Luigi Di Maio and his PD counterpart Nicola Zingaretti said they had pledged to find common ground for the good of the country.

‘We love Italy and we consider it worthwhile to try this experience,’ Zingaretti told reporters on Wednesday. Speaking shortly afterwards, Di Maio said: ‘We made commitments to the Italians…and come what may we want to fulfil them.’

Salvini said Wednesday his party was confident it would win eventual new elections next year, saying ‘we’re in no hurry’. 

Italian president Sergio Mattarella is trying to avoid holding an election in October, when Italy will enter into an intense budget negotiating period (pictured, a Corazziere guard at the President’s Quirinale palace in Rome where negotiations are taking place)

In an early, basic draft of a coalition policy platform, the two sides would ask the EU for flexibility on the 2020 budget deficit to ‘reinforce social cohesion’ in the country, financial daily Il Sole 24 Ore said on Thursday.

The EU imposes budget rules on member states with the aim of ensuring financial stability in the bloc. 

It has had a testy relationship with Rome under the outgoing administration, with League leader Matteo Salvini blaming the EU rules for impoverishing Italians.

The prospect of a new administration led by Conte has buoyed markets, which are betting that Italy will get a fiscally prudent government that will avoid confrontation with Europe.

Before Mattarella mandated Conte to form a new administration Italian government bonds had maintained their recent rally into Thursday. 

The yield on 10-year debt traded at around an all-time low it touched the previous day, and the spread between Italian and German 10-year debt was at 166 basis points, it’s tightest since May 2018.

Milan’s FTSE Mib was up nearly 1.5 percent after the announcement.

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