Italy’s Salvini Backs Coalition, Dispelling Fears of a Breakup

(Bloomberg) -- Deputy Prime Minister Matteo Salvini had everyone worried he would force the collapse of Italy’s government. Now he’s won concessions that have appeased him, at least for the moment.

Premier Giuseppe Conte handed Salvini a victory with support for a high-speed Alpine rail link with France, a project the rightist League chief has championed in a long-running clash with fellow-Deputy Premier Luigi Di Maio of the anti-establishment Five Star Movement. Conte addressed parliament on the so-called “Russiagate” scandal Tuesday, standing by the League party leader.

“I’ve always said that if the government gets things done, the government goes ahead,” Salvini told reporters Tuesday. “Yesterday and today, there have been good signs that things are moving.”

Conte said Monday evening that stopping work on the rail link would cost more than going ahead -- an embarrassment for Five Star, which has long opposed the plan on environmental grounds. On Tuesday, Conte hosted talks with participants including Salvini that allocated 50 billion euros ($56 billion) to infrastructure projects, the League leader said in a Facebook post.

Salvini has been weighing whether to ditch Five Star in a bid to trigger early general elections this fall, repeatedly accusing his partners of blocking his campaign promises. Conte’s move on the multi-billion-euro project aims to persuade the League leader to stick with the coalition.

Salvini has missed a window for a snap vote to be held in September, in time for a new administration to start work on the 2020 budget. From the moment parliament is dissolved, some 60 to 70 days would have to pass before the actual vote, meaning that an election can’t be held before September.

‘Russiagate’

Conte, a former Florence lawyer, said he had “no reason to doubt” the conduct of any government members in relation to Russia, speaking in the Rome senate on reports that a close associate of Salvini allegedly solicited illegal party funding from three Russians. Conte added that Italy’s policy toward Russia has not changed.

Five Star senators stayed away from Conte’s speech, with the party saying it’s Salvini and not the premier who should address parliament on “Russiagate.”

Salvini himself was also absent, having called a security meeting at his interior ministry. The League leader has denied his party received any Russian financing and insists he has “never taken a ruble, a euro, a dollar or a liter of vodka in financing from Russia.”

The Italian bond market has been largely unruffled by the prospect of fresh elections, having surged this year after the nation avoided punishment over its budget by the European Union. The 10-year yield spread over Germany, a key gauge of risk in the country, has consolidated below 200 basis points, close to the lowest level in more than a year.

The outlook for bonds in a new election is mixed. While a Salvini-led government could ease the strain on Italy’s fiscal expenditure, it could also trigger a spike in euroskepticism and boost speculation surrounding so-called “mini-bills,” seen by some as an alternative currency.

Picked by Five Star for the premiership, Conte has come under increasing pressure as a mediator between the coalition allies, with Salvini accusing him of not being impartial. In another attempt to defuse tensions, Conte has postponed talks on giving stronger powers to northern regions in the League’s electoral stronghold, also a cause of skirmishes with Five Star, whose power base is in the depressed south.

Bloomberg first reported on July 15 that Italy was preparing to commit itself to completing the Alpine rail project.

--With assistance from John Ainger.

To contact the reporters on this story: John Follain in Rome at jfollain2@bloomberg.net;Chiara Albanese in Rome at calbanese10@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Richard Bravo, Nikos Chrysoloras

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