Italy's Populists See Significant Step Toward New Government

(Bloomberg) -- Italy’s populist leaders took strides toward forming the next administration at a meeting in Rome Thursday, including on the issue of who should be prime minister.

Luigi Di Maio of the anti-establishment Five Star Movement and Matteo Salvini of the anti-immigrant League reported “significant steps forward on the make-up of the executive and of the premier” in their first-ever joint statement. They asked President Sergio Mattarella to give them until Monday to complete their plans.

If the two euroskeptic parties can pull off an agreement to take control of Europe’s fourth-biggest economy they would become a major obstacle to efforts to strengthen the European Union.

While German Chancellor Angela Merkel and France’s Emmanuel Macron are preparing a roadmap for further integration to be presented in June, the groups potentially behind Italy’s next government have blamed the EU for the country’s ills from immigration to spending cuts and lackluster growth. Italian bonds fell.

Investors’ Concerns

A beaming Di Maio said in a video on his Facebook page that he aims to give Italy a government as soon as possible. “This morning I met Matteo Salvini here and we agreed that we have to start by talking about issues -- the issues and the solutions to problems the Italians have been waiting 30 years for.”

The spread between Italian 10-year bonds and similarly dated German bunds widened by 5 basis points to 137 at 12:40 p.m. Thursday in Rome, the widest since March. The gap has increased by 14 basis points in the past three sessions with investors concerned about the populists’ spending policies, and their pledges to overhaul of EU treaties.

Read more about the two parties’ policy plans here

Officials from the two parties will continue discussions on specific policy areas during the afternoon, the leaders said. The talks aim “to define the government program and priorities,” they added. President Mattarella is waiting to hear back from Di Maio and Salvini before nominating a prime minister.

Read more about Italy’s financial challenges here

League candidates tipped for the premiership include Giancarlo Giorgetti, 51, head of its lawmakers in the lower house; senator Giulia Bongiorno, 52, who is also a prominent lawyer; and Enrico Giovannini, 60, a former labor minister. Five Star, which has no experience of national government, is considering Roberto Fico, 43, though that would mean sacrificing his post as speaker of the lower house.

Salvini and Di Maio could serve as deputy-premiers, according to newspaper Corriere della Sera, with Salvini running the interior ministry and Di Maio in charge of foreign policy. The paper said Di Maio aims to find a solution on a Five Star-League government by May 20, so that he could still push for summer elections if talks fail.

Establishment Retreats

In the meantime, 76-year-old Mattarella, a former constitutional court judge who was sponsored as head of state by the center-left Democratic Party, set out a defense of the EU at a conference near Florence.

“We must resist the hegemony of a nationalist narrative which offers solutions that are as seductive as they are unworkable,” the president said Thursday. “Everyone knows that none of the big challenges to which our continent is exposed today can be tackled by just one member state.”

If the talks were to unravel at this late stage, Mattarella has promised to name a non-partisan premier in order to break the deadlock that has dragged on since an inconclusive election on March 4. The populists say they would use their blocking majority to oust any such candidate and trigger a repeat election as early as July.

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