Italy’s Conte Clears Last Hurdle as Five Star Members Back Pact

(Bloomberg) -- Prime Minister-designate Giuseppe Conte is poised to form Italy’s next government after supporters of the Five Star Movement, one of the two main parties set to join the coalition, backed him in an online vote.

Five Star activists voted by 79.3% Tuesday in favor of Conte’s attempt to form an alliance between Five Star and the center-left Democratic Party, an establishment force Five Star had long criticized as corrupt, inept and out of touch.

Conte is now due to bring a list of ministers and a government program on Wednesday to President Sergio Mattarella, who gave him a mandate to try to form a government last week.

Italian bonds rallied for a third day, with 10-year yields dropping five basis points to 0.83%, a fresh record low. The spread over those on German bonds, a key gauge of risk in the nation, fell to 150 basis points, the lowest level since the forming of the previous coalition in May last year.

The online ballot was seen as the final serious impediment to Conte’s return as prime minister, about a month after the previous government he led collapsed amid a power play by the League’s Matteo Salvini, who had gambled on taking the country to new elections.

Five Star party leader Luigi Di Maio announced the result to reporters at the lower house of parliament in Rome. Both Di Maio and leaders of the Democrats said Tuesday that work on a common program is now complete, following a meeting of the two parties.

A new administration could be sworn in later this week, with a first confidence vote in the lower house by the weekend and in the Senate early next week.

Conte will be hoping his second term as premier is quieter and more stable than his first time around, when skirmishes dogged the alliance between Five Star and Salvini’s rightist League. The Five Star-Democrat coalition is also aiming to turn the page on Salvini’s frequent assaults on the European Commission.

While the outcome of Five Star’s online vote was uncertain, party activists have tended to endorse the party leadership’s decisions in the past. Five Star has long championed direct democracy and regularly consults members on its Rousseau online platform, which has over 115,000 voting members.

Elections Averted

A rejection of the alliance with the Democrats would likely have left Mattarella with little choice but to dissolve parliament, triggering general elections possibly in November.

The new administration plans to push through an expansionary 2020 budget and demand a review of European Union fiscal rules, according to a draft program seen by Bloomberg. The 26-point agenda pledges to avert an increase in sales tax that’s due to kick in next year by cutting spending and raising revenue in other areas.

Next year’s budget will also cut taxes on labor and introduce a minimum wage, but it won’t jeopardize public finances, according to the draft. Avoiding the sales tax hike in 2020 will require finding savings of about 23 billion euros ($25 billion) from elsewhere in the budget.

Just who will steer Italy’s economy has yet to be decided, according to officials from Five Star and the Democrats, who asked not to be named discussing confidential negotiations.

Options for the finance minister post include Salvatore Rossi, former director general of the Bank of Italy, Dario Scannapieco, vice president of the European Investment Bank, and Roberto Gualtieri, a Democrat member of the European Parliament, the officials said.

The draft promises a new tax on internet giants who shift profits out of the countries where they are doing business in order to reduce their liabilities -- a controversial measure introduced by France this year.

Other policies include reviewing highway concessions, cutting the number of lawmakers in the Rome parliament and seeking new EU rules on illegal immigration.

--With assistance from Marco Bertacche, Daniele Lepido, Tommaso Ebhardt, Dan Liefgreen, Sonia Sirletti and John Ainger.

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, ;Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten, Alessandro Speciale

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