For those who missed the latest Italian government crisis, ex-PM Renzi’s party Italia Viva (IV) pulled out of the government coalition last week, causing a political crisis and speculation that Italy was about to have its 132nd government in 160 years.
IV and the Conte government mainly disagreed on the usage of the European Recovery and Resilience funds, as well as on the possibility of Italy taking up ESM loans – Renzi was in favor, Conte was against. The result is now a political crisis, of which the end-game still seems very uncertain.
So what happens next? Here are the most likely next steps courtesy of Nomura’s George Buckley and Chiara Zangarelli:
Conte will face a confidence vote today to confirm that his government still holds a majority in parliament. Conte will address the lower house on Monday and the Senate on Tuesday, both at 8.30am London time. The PM’s decision to submit to a confidence vote is backed by the hope of finding enough senators by Tuesday willing to vote in favor. The more complex vote is in the Senate, where the current government holds a smaller majority. With IV pulling out of the government, Conte would be 20 votes short of a Senate majority (161 votes). However, in the past he has been able to count on the votes of three life senators as well as around nine independents, meaning that he required fewer than 10 votes from the centrist parties.
The best outcome for Conte is to win the confidence vote, but that would still leave the government with only a minority in the Senate, relying on the support of independent senators, who may pull out when most needed. The result would be a weak government, with a very precarious stability.
By contrast, if Conte loses the vote, then President of the Republic Mattarella should open consultations about the formation of a new government within the current parliament. According to recent comments from 5SM members, the fact that Renzi has caused the political crisis, means that the 5SM will not be willing to cooperate with IV in the future. PD, by contrast, would be willing to work within a majority similar to the current one (including IV), but would likely ask for a new PM. That is very similar to IV’s requests; in fact, the party would be happy with the current coalition government, but with a cabinet reshuffle and Conte’s resignation. In this scenario, we think all parties will play hardball to obtain as much as they can from the situation. However, we also think that the parties will show a willingness to negotiate if the confidence vote fails, and the only alternative is new elections. If new elections were to become a real threat, 5SM would probably prefer to cooperate with IV in a new government, and accept Conte’s resignation.
Nomura feels comfortable in saying that the option of fresh elections remains unlikely; however, at this stage it should not be underestimated, and the Japanese bank attributes a 10% probability to a new elections scenario. And while the situation remains very fluid: it is a close call, but at this stage and in view of Conte’s decision, the government will likely win the confidence vote (40%). If the confidence vote fails, then the most likely result of the crisis will be a new government composed of 5SM, PD and IV but with a new PM, with a 30% probability (no names have been put forward yet, but PD’s Dario Franceschini could be a viable alternative). A 5SM, PD and IV government, headed by Conte (that would be his third mandate since 2018), has a 20% probability.
Mon, 01/18/2021 – 11:46
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Author: Tyler Durden