Italian President Sergio Mattarella is beginning a two-day round of consultations with parties on Wednesday to explore whether it is possible to form a government.
Giuseppe Conte resigned on Tuesday, ending a 14-month coalition government between the Five Star Movement (MS5) and Lega, after Matteo Salvini moved on Aug. 8 to withdraw his parliamentary support.
Politicians from MS5 and the Democratic Party (PD) are openly discussing the prospect of a new coalition. Financial markets rallied on Conte’s resignation, hopeful that a 5-Star/PD coalition can keep the prospect of snap polls at bay.
The prospect of a Lega government is tied to scenarios of a deficit-financed growth policy, which would include corporate tax cuts and infrastructural investment. There is also talk of a parallel currency, in the form of small denomination bonds, without maturity, similar to promissory notes.
“It looks as if a new government, perhaps with a different composition, will emerge,” German Finance Minister Olaf Scholz told German television on Wednesday.
PD’s leadership is holding a meeting on Wednesday to discuss the prospect of joining forces with 5-Star, with former prime minister Matteo Renzi telling France 2 TV ahead of the meeting that a deal is possible.
During his resignation speech, Conte warned that the last thing Italy needs is political volatility as the country is preparing for a difficult 2020 budget. He noted that a new government will find it hard to avert a €23bn VAT hike under the pressure of surging bond spreads. In early August, Italian bonds were selling at 14-month lows.
The president of Italian stock-market regulator (CONSOB), Paolo Savona, called on Tuesday for a preamble to the 2020 budget law that commits to diminishing GDP ratio close to zero. Italy has a debt-to-GDP ratio second only to Greece in the eurozone; in absolute numbers, it is the biggest in Europe