Giuseppe Conte is now indeed Italy’s new prime minister, but it took a second attempt. On June 1, Conte presented another cabinet with 18 ministers, including 5 women. Paolo Savona, refused by President Mattarella in a first attempt as the new minister of the Economy and Finance, was now placed at the Ministry of European Affairs. The new minister of Economy and Finances is Giovannia Trio, an economist who – unlike Savona – has not questioned Italy’s participation in the eurozone [Added on June 2, 2018 at 18:41 Italian time].
Today, after a talk with Italy’s President Mattarella, the possible prime minister Giuseppe Conte gave back his mandate to form the next Italian government. An additional problem remains: According to Italian media, the president remains opposed to Paolo Savona becoming Italy’s next minister of the Economy and Finances. In recent years, Savona has advocated Italy’s withdrawal from the eurozone [Added on May 27, 2018 at 20:36 Italian time].
After a few checks, the Italian president Sergio Mattarella has finally accepted Giuseppe Conte (*1964) as Italy’s new prime minister.
Giuseppe Conte is an Italian lawyer and law professor with no political experience whatsoever. Will he just be a straw man for the Five-Star-Movement boss Luigi Di Maio and the Lega leader Matteo Salvini?
In the past days, Di Maio and Salvini have put together a 57-page program with 30 points that they would like to implement. 94% of the Five-Star-Movement and 91% of the Lega members participating in a vote on this “Treaty for a government of change” approved it and, therefore, the coalition between the two populist parties with partly opposing ideas.
The strongmen of the two parties, Salvini and Di Maio, had decided that neither of them should become prime minister. The unknown Giuseppe Conte is a compromise candidate nobody has ever heard of.
According to media reports, Prime Minister Conte is neither a euro- nor a EU-skeptic as so many members of the Lega and the Five-Star-Movement. He as been described as a calm and reflected person. Will it be enough to be he own man? He represents no party and, therefore, has no base to support him.
The markets are worried
The coalition treaty (Contratto per il governo del cambiamento) stipulates a radical simplication of the tax system. The populist Five-Star-Movement and right-wing populist Lega have come forward with a 15% flat tax for corporations and indiviuals making less than 80.0000 Euro a year as well as 20% flat tax for corporations and individuals having an income above that threshold.
Indeed, the taxes and other charges corporations and individuals have to pay are for too high in Italy. Among the consequences are a massive tax evasion and a strong shadow economy. In addition, the Italian administration needs to be streamlined, has to become more effective. The same applies to the fight against corruption.
However, you cannot on one hand lower taxes and other charges and on the other hand increase public spending. The Five-Star-Movement and the Lega want to create a minimum income as well as to get rid of the pension reform – once implemented under tears by the minister in charge Elsa Fornero, after whom the pension reform was made.
Both the EU and the financial markets are rightly worried. The spread between the German and the Italian bonds has already widened. Italy’s public debt stands at over 130% of GDP and the unemployment rate is still around 11%. There is not much room for experiments. Italy is too-big-to-fail and too-big-to-be-rescued. The coalition treaty does not promise financial solidity.
Despite its exorbitant public debt, Italy has not imploded yet mainly because of the ECB’s expansive financial policy. The result of this policy are ridiculously low interest rates which do not reflect the risks behind which lay behind Italy’s public debt. The same holds true for private debs for both corporations and individuals (e.g. mortgages). The current situation is unsustainable. At one point, the ECB will have to rise interest rates. The risks in the public and private sector will re-emerge and some countries, corporations and individuals will be in financial trouble.
The Italian state has not used the time of low interest rates to push through structural reforms and, unlike Germany, has not had the strenght to pay down part of its public debt. This is especially worrying given the fact that the times of low oil and gaz prices seem to be over.
The new coalition government has the support of the majority of Italians
Despite the grim outlook, according to a poll published by the institute Demos for the daily newspaper La Repubblica, 60% of Italians are in favor of the new government formed by the populist Five-Star-Movement and the right-wing populist Lega. Only 25% are in support of new, early elections.
The Italian voter seems to honor the impression that Lega leader Matteo Salvini wants to solve problems offensively. According to the latest Demos poll for La Repubblica, la Lega would win 25,5% of the vote if elections were held today. The Five-Star-Movement would still get 32,1%. Together, the two parties would have an even clearer majority than now. Silvio Berlusconi’s Forza Italia fell to 9,8%, the oppositional, social-democratic Democratic Party would get 19%. Therefore, the Italian President Mattarella had good reasons to give the two populist parties a chance to govern despite doubts about their program. In addition, several newspapers had found incoherencies in Giuseppe Conte’s CV. As it looks now, the new prime minister has just embellished it without outright lying. The new populist government will have to prove that it can push through a reform agenda that brings substantial change for both the Italian people as well as the Italian economy. At present, many doubts remain given the financially unsound coalition treaty and the partly opposing agendas of the two governing parties. We can only hope that Salvini and Di Maio will march in the right direction and will not sink the Italian ship, which would lead to another world economic crisis.
Added on May 23, 2018 at 22:04 Italian time
