Italy's Berlusconi Says Open to Five Star-League Government

(Bloomberg) -- Former Italian Prime Minister Silvio Berlusconi said he’s open to the formation of a government by the anti-establishment Five Star Movement and the euro-skeptic League, a populist administration which financial markets consider a potential worst-case scenario.

Berlusconi, leader of the Forza Italia party, said in a statement that he would not veto such an administration, and would support measures in line with the policies of the center-right alliance led by the League. Forza Italia is a partner in the alliance.

The four-time premier, who had previously opposed a Five Star-League tie-up, said he would respect a decision of “another political force of the center-right to create a government with Five Star.” He added: “We would not impose vetoes or pre-conditions.”

Berlusconi said he would not back a parliamentary vote of confidence for such an administration “but we would calmly and without prejudice assess the work of the government,” adding that he would “loyally support” laws in line with the center-right’s program. His stand did not mean the end of the center-right bloc, he said.

Five Star head Luigi Di Maio has offered to govern with the League following the inconclusive March 4 elections, but has insisted that Berlusconi’s Forza Italia be excluded. League leader Matteo Salvini, who leads the center-right, has refused to break with Berlusconi through two months of negotiations.

Investors Watching

Investors are concerned that a populist-led government would carry out spending policies that could jeopardize state finances, as well as seek to overhaul European Union treaties.

"A political government is now more probable, and a mild negative market reaction is likely tomorrow," said Vincenzo Longo, an analyst at IG Markets. "This coalition was the most feared by markets even before the vote, given their anti-establishment views, and market impact has been limited by their less extreme views on the euro and Europe since their campaign, but the impact may only emerge in the longer term."
Berlusconi’s move follows a decision by President Sergio Mattarella to grant the populist parties 24 hours to try to form a government. If that fails, Mattarella could name a non-partisan premier despite pledges by Five Star and the League to vote against that figure and move to early elections.

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