Italy's New Premier Passes First Hurdle as Investors Wary
(Bloomberg) -- Italian Prime Minister Giuseppe Conte passed his first parliamentary hurdle, but alarmed markets with a maiden speech pledging a raft of populist measures from boosting spending on the poor and the jobless to sweeping tax cuts.
The Senate, where the 53-year-old law professor’s coalition has a thin majority, voted by 171 votes in favor of the government, with 117 against, in a confidence ballot, after Conte promised a “citizen’s income” for the poor as well as curbs on immigration, and called for a stronger, fairer Europe “to prevent its decline.” Conte faces a second confidence vote in the lower house on Wednesday afternoon.
Investors had taken fright last week at the prospect of a challenge to the fiscal regulations binding the euro, but Conte tried to soothe markets. He made no mention of the single currency in his first speech, nor did he make any reference to scrapping a pension reform that raised the retirement age. In a later speech, he insisted that a euro exit “has never been discussed” and isn’t an objective of the government.
Despite his attempt to calm markets, bonds dropped as he outlined a program of fiscal expansion drawn up by the euroskeptic Five Star Movement and League.
“Eliminating the difference in the economic growth between Italy and the European Union is one of our objectives, which must be pursued within a framework of financial stability and market trust,” said Conte, flanked by Five Star leader Luigi Di Maio and League chief Matteo Salvini. Conte was confident about his government’s “negotiating power,” because Italy’s interests match Europe’s.
Italian government bonds extended their decline during his speech as he gave investors little indication that he would diverge from the populist program. The yield on the 10-year Italian bond rose to 2.9 percent Wednesday morning, while the FTSE MIB benchmark stock index was up 0.1 percent at 9:17 a.m. in Milan.
The spending and tax program proposed by the two parties will cost as much as 126 billion euros ($147 billion) in its first year, according to Carlo Cottarelli, a former International Monetary Fund executive who nearly became premier himself.
“Some may have hoped for some watering down after the market moves we saw last week,” said Jan von Gerich, chief strategist at Nordea Bank AB. “But Conte talks about revolutionary measures.”
Defending populism as “the ruling class listening to the people” as he made his first attempt to reconcile Di Maio and Salvini’s contrasting demands, Conte promised the citizen’s income for the poor and the jobless, a two-tiered flat tax, and a boost in health spending. At the same time, he also promised to reduce public debt “by making our wealth grow, not through austerity measures.”
Conte also vowed “revolutionary measures” to overhaul the tax system, to review bankruptcy laws, crack down on big companies “hiding their wealth in artificial havens” and cut the perks of politicians.
The novice premier sought to reassure Italy’s EU partners. “Europe is our home, the home of everyone. We must push for a stronger and fairer Europe.”
With Salvini of the anti-immigrant League nodding in agreement at his side, Conte accused EU partners of “selfishly unloading on Italy” the task of dealing with immigrants from across the Mediterranean, “which should have been shared.” Conte said that recent comments by German Chancellor Angela Merkel show that leaders “are realizing that Italy cannot be left on its own in the face of such challenges.”
Conte supported an opening to Russia: “We will promote a review of the sanctions system, starting with those that threaten to penalize Russian civil society.”
©2018 Bloomberg L.P.