The Prime Minister of Italy answers questions during the press conference at the end of the year.
Alessandra Benedetti – Corbis | Corbis News | Getty Images
Italy is on the verge of another political crisis, as members of the coalition government question the prime minister’s plan for the country’s economic recovery.
The southern European nation is experiencing political conflict; tensions, scandals and small majorities have led to more than 60 governments since World War II. However, the latest political dispute is coming at a particularly painful time, with the number of coronavirus infections and deaths among the highest so far in Europe and its gross domestic product (GDP) forecast to have shrunk by around 10% in 2020 .
“In the most likely scenario, the crisis will lead to the formation of a new executive,” Wolfango Piccoli, co-president of consultancy Teneo, said in a note on Monday.
Prime Minister Giuseppe Conte has been in power since June 2018, but is already leading his second government after a political dispute in the summer of 2019 culminated in a new coalition formed by the left Democratic Party and the Five Star Movement, another left party. , in the 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 pits Conte, without political affiliation, against former Prime Minister Matteo Renzi, who defected from the Democratic Party in September and created his own group called Italia Viva, which supports the coalition and has two ministerial positions. However, Renzi is threatening to withdraw his support for the current executive, arguing that Conte’s plan for economic recovery is not ambitious enough.
The European Union has agreed to turn to financial markets for 750 billion euros ($ 920 billion), which will be invested in 27 nations to help them resurface in their economies after the coronavirus pandemic.
Italy is a major beneficiary of these funds, expecting some € 208 billion in grants and low-interest loans. However, the challenge is how to make the most of this money, as Italy has the EU’s second largest public debt and its economy was 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,” he said. Alberto Alemanno, an EU law professor at HEC Paris Business School, told CNBC on Tuesday.
Experts like Piccoli de Teneo believe the dispute “will come to a head later this week, when Conte will submit his revised economic recovery plan to the cabinet for approval. The trigger for the formal opening of the crisis may be the refusal of the two ministers of Italia Viva to endorse the plan. “
“Although Italia Viva is just a junior partner in the governing coalition, the numbers are so tight in parliament, especially in the Senate, that withdrawing their support could trigger a vote of confidence in the prime minister,” he added.
Ignazio Corrao, an independent Italian legislator in the European Parliament, told CNBC on Tuesday that an early election is likely to be avoided and that there will be a new prime minister or a cabinet reshuffle.
Renzi “needs to use all the political means he has now … to be empowered in the future,” said Corrao, suggesting that the political dispute could be a tactic for the newly created Italia Viva party to gain more ground.
Yield on the 10-year Italian bond rose slightly this week, with markets opening for the first trading days of 2021 and due to the political situation. However, yields are still being traded at low levels, around 0.532%, due to the large amount of monetary and fiscal stimuli in Europe.