Italy's Salvini May Seek New Election as Budget Fuels Crisis

(Bloomberg) -- As Prime Minister Giuseppe Conte prepares to present his budget in Brussels on Wednesday, one of the main powers behind Italy’s government, League leader Matteo Salvini, may be looking beyond the crisis a failed spending plan could trigger and toward new elections early next year, la Repubblica reported.

With both Salvini and fellow Deputy Prime Minister Luigi Di Maio of the Five Star Movement refusing to agree to a 2019 deficit below 2.1 percent, Conte’s mission to Brussels is seen within the government as a “certain defeat,” Repubblica said, with an excessive deficit procedure from the European Union to follow.

The resulting crisis could play right into Salvini’s hands. Although his League is technically the junior member of the governing coalition, polls show it overtaking Five Star as Italy’s most popular party.

Italian bonds rose on the news with the 10-year yield falling 3 basis points to 3.09 percent at 10:22 a.m.

For his part, Salvini denied speculation over a new vote, calling it “fake news,” Ansa news agency reported.

Yellow Vests

Salvini and Di Maio have hardened their position toward Brussels in the wake of promises for increased spending by French President Emmanuel Macron as he attempts to defuse the Yellow Vest protests sweeping his country. Italy has periodically complained that Paris gets special treatment when the European Commission assesses national budgets.

“Comparing France and Italy is tempting but erroneous,” European Commissioner for Economic and Financial Affairs Pierre Moscovici said in an interview with newspaper Le Parisien. “The situations are totally different, the commission has had Italy under surveillance for years, we never had it for France.”

A new election could cement Salvini’s standing as the country’s leading politician -- and perhaps free him from the improbable “Yellow-Green” coalition, in which the rightist League governs along with the anti-establishment Five Star. Both groups regularly spar over their wildly different views of priorities and policies.

BTPs Can Rally If Any Election Leads to More Focused Government

Salvini, who also serves as Italy’s interior minister, has already set out the weekend of March 10-11 as a date for possible early elections, Repubblica said.

“Practically everyone in the League’s government group is said to advocate a return to the polls,” the newspaper reported, citing unnamed party officials.

A new-election scenario could see Salvini sparking a government crisis, and if attempts to form a new coalition fail, President Sergio Mattarella could call for a new vote. Mattarella has the last word on calling new elections.

©2018 Bloomberg L.P.