Italy’s Unlikely Allies Close In on a New Coalition Agreement

John Follain
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Italy’s Unlikely Allies Close In on a New Coalition Agreement

(Bloomberg) -- Coalition talks between Italy’s Five Star Movement and the Democratic Party accelerated, with the two groups nearing an agreement that would have Giuseppe Conte remain prime minister of a new ruling alliance.

Deputy Premier Luigi Di Maio of Five Star and Nicola Zingaretti of the Democrats held talks with Conte that lasted into the early hours on Tuesday. And while the Democrats haven’t signed off on the new role for Conte, and the 2020 budget remains an obstacle, the two sides will meet again starting at 11 a.m. on Tuesday to continue deliberations, Ansa newswire reported.

The progress fuels optimism that the two groups can reach a deal that would avert early general elections. The third-biggest economy in the euro area, plagued by stagnation, can ill afford the months of political uncertainty that a vote and then forming a new administration would bring.

Italian bonds opened higher as the prospect of a deal improved. The benchmark 10-year yield fell 4 basis points to 1.30% as BTP futures climbed as much as 94 ticks to 143.48.

Both Five Star and the Democrats are under pressure from President Sergio Mattarella, 78, whose task it is to appoint a new premier or dissolve parliament to trigger a new ballot. The head of state wants a definitive answer when he holds a second round of talks with party leaders Tuesday and Wednesday.

Decision Time

Five Star would put a deal to an online vote of its supporters, according to two party officials. While the leadership routinely wins these types of consultations, the Democrats are wary that it could also be used as a pretext to walk away from an accord, daily Il Messaggero reported.

The consultations will begin with smaller parties Tuesday, and will end Wednesday with the biggest groups including Five Star, the League and the Democrats. While Mattarella hosts his series of talks on the first day, the Democratic leadership will meet at 6 p.m. and Five Star lawmakers will meet at 7 p.m. to discuss the coalition plans.

Mattarella, a former constitutional court judge, has demanded that any proposed coalition must have a solid parliamentary majority and a policy agenda lasting until the end of the current legislature in 2023.

If that’s not the case, Mattarella could spark a vote possibly in November. Another scenario could see Five Star and the rightist League of Matteo Salvini stage a surprise reconciliation and remain in government together after a cabinet reshuffle. Di Maio has had continued contacts with Salvini during the bargaining with the Democrats, newspapers including La Stampa reported.

Zingaretti of the Democrats has been resisting Five Star’s demand that caretaker Prime Minister Giuseppe Conte remain premier, pressing for a new alliance to mark a break with the current government. But Zingaretti has to contend with a majority of Democratic lawmakers who want a deal with Five Star, according to party officials who declined to be named.

Power Grab

Conte, a Florence lawyer chosen by Five Star to lead the populist government with the League last year, himself kept a low profile. The premier decided not to hold a news conference after the Group of Seven summit in Biarritz, France. Conte kept his distance from the Rome negotiations and was mostly quiet at the G-7.

Deputy Premier Salvini, who knocked the coalition on its head earlier this month in a power grab to capitalize on voter support, has not given up on hopes of reconciliation with Five Star if he cannot obtain early elections.

Salvini’s popular support may have been hurt by the August move. A Tecne poll published by TGCom showed the League at 31.3%, from about 38% earlier in the month. Five Star would currently get 20.8%, up from 17.5%, and the Democrats 24.6%, compared with 22.4%.

The League reaffirmed its readiness to start talks with Five Star “to renew and pursue” the contract for government the two parties signed last year, the League’s Gianmarco Centinaio, minister for agriculture, told Ansa.

(Updates with online vote, Salvini contacts.)

--With assistance from Alessandro Speciale and Tommaso Ebhardt.

To contact the reporter on this story: John Follain in Rome at jfollain2@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Richard Bravo, Jerrold Colten

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