Italy's Populist Government Prepares to Face Parliament Vote

(Bloomberg) -- Three days after being sworn in, Italy’s new populist government is preparing for one final hurdle before it sets about trying to overhaul European Union rules and the established order: a confidence vote in both houses of parliament.

Parliamentary approval will be sought this week for the 18-member cabinet of Prime Minister Giuseppe Conte, a 53-year-old law professor with no political experience. The anti-establishment Five Star Movement and the anti-immigrant League currently hold a majority in both houses, although in the 320-seat senate the two groups only have 14 votes more than the opposition.

Italy's Populist Government Prepares to Face Parliament Vote

Conte signaled his conviction that the votes will be no problem, saying in a Facebook post that he would hold a bilateral meeting with German Chancellor Angela Merkel at the summit of Group of Seven nations in Canada on June 8-9.

While this first vote is likely to go smoothly as the parties have already agreed on the list of ministers and government program, some analysts predict difficult times ahead in future parliamentary ballots as the two parties spar over which of their expensive electoral promises to keep first.

“The coalition parties have different constituencies and different requirements from the budget,” which could led to a renewed political crisis in the medium to short term, financier George Soros wrote in an op-ed published in newspaper Corriere della Sera on Sunday. “The government may well fall, so we may be facing elections later this year or more likely early next year.”

On Sunday, Five Star leader Luigi Di Maio said a universal basic income for poorer Italians will be among the first measures he plans to put before the parliament. League’s leader Matteo Salvini, who has promised voters hefty tax cuts, said over the weekend that he plans to cut 5 billion euros ($5.8 billion) worth of assistance to asylum seekers in order to recover funds to keep his electoral pledges.

Italy's Populist Government Prepares to Face Parliament Vote

Yet the sum is small compared with the implementation of the full Five Star and League program, which also includes scrapping a pension reform that had helped balance Italy’s precarious finances during the economic crisis. Corriere della Sera estimated the cost of the populist program at as much as 100 billion euros. That’s ambitious for Italy, which has the second highest debt burden in Europe after Greece, and one that could put it on a collision course with the euro-zone’s fiscal discipline.

The announcement of the government plan alarmed markets last week and sparked tensions with Italian President Sergio Mattarella, almost scuppering the chance of forming a government. The spread between Italian and German 10-year bonds widened to 290 basis points on May 29 when concerns about the program added to speculation over the possible appointment of 81-year-old euroskeptic economist Paolo Savona as finance minister. The post eventually went to economist Giovanni Tria, 69, calming markets, with Savona being made responsible for European affairs.

“The worst case scenario was avoided, but uncertainty remains,” Kepler Cheuvreux analyst Marco Baccaglio wrote in a note on Friday. A weak majority in the senate might undermine the sustainability of the government and the of cost of the plan “cannot be forgotten.”

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