The Italian national flag flies in an entrance to the Piazza del Campo with the Torre del Mangia in the distance, in Siena, Italy. (Photographer: Marc Hill/Bloomberg)

Italian Populists Head to Overtime Divided on Coalition Plan

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(Bloomberg) -- Italy’s populists are struggling to nail down the final details of their plans to form the next government and tensions are beginning to mount.

“Either we get started or we say goodbye to each other,” League leader Matteo Salvini said after talks with President Sergio Mattarella Monday. He said he’s asked for “a few more hours” to complete a coalition deal and “to do what I promised Italians.”

Signs are that it will take longer than that.

Five days after Mattarella’s initial 24-hour deadline expired, Salvini’s would-be coalition partner, Five Star’s Luigi Di Maio, said he’d asked the head of state for “a few extra days” to finish the pact and plans to put the final deal to a vote of members of his anti-establishment party.

Di Maio told Mattarella he favored Giuseppe Conte, 53, a law professor at Florence University, as premier, according to newspaper Corriere della Sera on Tuesday. Di Maio and Salvini may serve as deputy premiers, the paper said. Neither leader has yet publicly indicated whom they are backing to lead the administration.

“Investors might start to think that these continued requests for extra time might hide challenges in finding a third-party prime minister able to lead the country,” said Vincenzo Longo, analyst at IG Markets in Milan. “The sand in Mattarella’s hourglass is about to run out, and markets seem to know it."

The FTSE MIB benchmark stock index gained 0.5 percent as of 9:50 a.m. in Milan while Italy’s 10-year bond spread over equivalent German bunds narrowed four basis points to 128.

Opposition to Spending

While Di Maio said the two parties had made progress on plans for a “citizen’s income” and rolling back recent pension changes, Salvini said more work was needed on the policies of the next administration. Mattarella agreed to the extension without putting a date on their next meeting, according to a senior state official.

Analysts say that their spending plans -- which include slashing the main tax rate for companies and individuals to as low as 15 percent -- are potentially so destabilizing for Italy’s precarious public finances that they would likely run into significant obstacles either from the courts or the parliament.

Mattarella himself has been concerned about the impact of the populists’ pledges on fiscal and foreign policy since Salvini’s center-right alliance and Five Star emerged as the biggest groups from the March 4 election, according to a senior state official. Mattarella, 76, a former constitutional court judge and government minister, has already signaled he could have ways to block unfunded spending plans as he seeks to maintain stability after more than two months of political gridlock.

Parties to Vote

The parties’ draft policies so far echo their key campaign proposals -- a flat tax for the League, and Five Star’s citizen’s income for the poor. Di Maio and Salvini, as well as party officials, held marathon talks throughout the weekend to finalize the program.

Depending on their progress, Mattarella could name a premier-designate this week. He or she would meet party leaders before presenting a list of ministers to the president for approval. The new government would then be sworn in before facing a vote of confidence in both houses of parliament.

The League is planning to give members their own vote on the coalition deal next weekend, newswire Ansa said.

“Today was expected to be a breakthrough,” said Lorenzo Pregliasco, a political consultant at Agenzia Quorum in Turin. “Not only do we still not have a name of a possible prime minister, but there also seem to be several points on which Five Star and the League remain distant. This could take some time.”

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