Law professor Giuseppe Conte is forming a government, while Italian ten-year bonds continue rally, boosting the EU’s exchange rate.
After the former IMF official Carlo Cottarelli gave back his mandate, President Sergio Mattarella swiftly gave Conte a second chance in forming a cabinet on Thursday evening. The compromise was forced by market pressure, leading the leaders of Italy two anti-establishment parties to compromise on the name of the Minister of the Economy.
The new government will not have the 81-year old Paolo Savona as Minister of the Economy; this compromise ends an 88-day political deadlock. He is likely to be replaced by another Economics professor, Giovanni Tria. Tria will now have to implement the promise of two flat tax rates, 15% and 20%.
Conte is forming a lean cabinet of 18 ministers, including five women, which should be ready to be sworn in by Friday afternoon. It is branded “the government of change.”
The far-right leader of the Lega, Matteo Salvini, keeps for himself the Ministry of Interior, in which he will implement promises for a sweeping anti-migrant policy. He promised open doors in Italy for “decent people” and “a one-way ticket for those who come to Italy to create problems,” adding that a ‘Go home’ policy” will be his priority. He has promised to deport half a million migrants.
The leader of the S-Star Movement, the 32-year old Di Maio, will hold for himself the Ministry of the Economy and Industry. He will seek to may good on promises of economic redistribution. Meanwhile, his MP Lorenzo Fioramonti sought to appease markets, telling CNBC that MS5 will not be radical in its economic reforms, presenting policies that echo the Portuguese growth policies implemented in 2015.
In anticipation of the formation of a government, Italian bonds continued to rally on Thursday. From the biggest surge in the cost of Italy’s borrowing in 25 years on Tuesday, Italy swang to the biggest drop in the cost of borrowing in 20 years.
By Thursday morning, Italian 10-year bonds fell by over 100 basis points. The news boosted the Euro, as the Eurozone received good news on growth, which outperformed expectations, reaching 1,9% in May compared to 1,2% in April.