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PM to unveil programme amid market cheer

Italy's new Prime Minister Enrico Letta was set to unveil his coalition government's programme on Monday under the watchful gaze of European partners and amid optimism among international investors.

PM to unveil programme amid market cheer
Italian PM-designate Enrico Letta (right) shakes hand with President Giorgio Napolitano after he announced his new government. Photo: Tiziana Fabi/AFP

The recession-hit country, which had been effectively rudderless since an inconclusive election in February, faces pressure to act fast to tackle social, economic and institutional ills.

Buoyed up by the new leadership, Italy aced its first market test at a five and ten-year bond auction, paying significantly lower rates to raise €6 billion ($4.58 billion).

"The contrast between the shock and uncertainty stemming from February's inconclusive election and the extremely favourable sentiment towards Italian paper right now is striking," said Nicholas Spiro from Spiro Strategy, a sovereign credit risk consultancy.

Letta, a 46-year-old moderate from the centre-left Democratic Party, is expected to address parliament at 13:00 GMT.

He has said he wants to deal quickly with the social fallout of the longest economic slump in 20 years by tackling a jobless rate of 11.6 percent and moving away from the austerity imposed by his predecessor Mario Monti.

The European policy on austerity, he said last week, "is no longer enough".

Political observers will also be looking for key measures aimed at pulling the eurozone's third-largest economy out of a recession which has driven thousands of businesses to bankruptcy.

Official figures on Monday showed that business confidence dropped sharply this month, falling to 74.6 points from 78.5 points in March on the national statistics agency's index.

"While post-crisis market sentiment towards Italy has never been better, economic conditions have never been worse," Spiro said.

Letta has promised to renew confidence in the country's scandal-hit and fractious political class but will be pushed hard to please all players.

The party bickering which followed the centre-left's failure to win a majority fuelled the growing unease captured in the anti-establishment Five Star Movement's spectacular rise to win one-fourth of the February vote.

Epitomizing the climate of tension, an unemployed man suffering from depression after failing to find work shot two policemen Sunday outside government headquarters just as the new cabinet was being sworn in a kilometre away.

Italy's newspapers on Monday said the attack had raised the spectre of the political violence that scarred the country during the 1970s.

"Six gun shots and Rome shakes from the idea of a new terrorism," said Il Fatto Quotidiano, while Il Corriere della Sera spoke of "those ghosts that follow us still".

The markets reacted favourably to the new government, with Milan stocks up 1.37 percent in late morning.

Letta "symbolizes a new generation in Italian politics and a less partisan approach," Unicredit chief economist Erik F. Nielsen said.

Ratings agency Moody's had warned on Friday of an "elevated risk" that a continued political stalemate would harm investor confidence.

Economy Minister Fabrizio Saccomanni, formerly the director general of the Bank of Italy, said on Sunday he would launch a pact with banks, businesses and consumers to boost growth and tackle a two-trillion-euro ($2.6-trillion) debt.

Italy's debt will rise to 130.4 percent of gross domestic product this year, while the economy will shrink 1.3 percent, according to official forecasts.

Letta's success will also rely on ensuring the continued support of the political parties – and he faces the first challenge on Monday from billionaire media magnate Silvio Berlusconi's centre-right People of Freedom party (PDL).

Berlusconi made the abolition and refund of a controversial housing tax imposed by Monti a key concession in exchange for his party's support – a move which would set the budget back some eight billion euros.

Renato Brunetta, PDL leader in the lower house, told Il Messaggero daily on Sunday that if the tax deal is not included in Letta's programme, the party will withdraw its backing.

Letta will also have to work to keep his own party from imploding, after a rebellion last week badly fractured the party.

The government will go to a confidence vote in both houses of parliament either Monday or Tuesday.

Analysts say the coalition is likely to last long enough to push through key reforms – including a revision of the complex electoral law which created the deadlock – but may be brought down by sparring parties within a year or two.

Observers said the resurgent Berlusconi – who installed his protégé Angelino Alfano as the government's number two – may pull support once he believes he could win a fresh poll.

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ITALIAN POLITICS

Italian government rocked by Five Star party split

Italy’s government was plunged into turmoil on Tuesday as foreign minister Luigi Di Maio announced he was leaving his party to start a breakaway group.

Italian government rocked by Five Star party split

Di Maio said his decision to leave the Five Star Movement (M5S) – the party he once led – was due to its “ambiguity” over Italy’s support of Ukraine following Russia’s invasion.

He accused the party’s current leader, former prime minister Giuseppe Conte, of undermining the coalition government’s efforts to support Ukraine and weakening Italy’s position within the EU.

“Today’s is a difficult decision I never imagined I would have to take … but today I and lots of other colleagues and friends are leaving the Five Star Movement,” Di Maio told a press conference on Tuesday.

“We are leaving what tomorrow will no longer be the first political force in parliament.”

His announcement came after months of tensions within the party, which has lost most of the popular support that propelled it to power in 2018 and risks being wiped out in national elections due next year.

The split threatens to bring instability to Draghi’s multi-party government, formed in February 2021 after a political crisis toppled the previous coalition.

As many as 60 former Five Star lawmakers have already signed up to Di Maio’s new group, “Together for the Future”, media reports said.

Di Maio played a key role in the rise of the once anti-establishment M5S, but as Italy’s chief diplomat he has embraced Draghi’s more pro-European views.

READ ALSO: How the rebel Five Star Movement joined Italy’s establishment

Despite Italy’s long-standing political and economic ties with Russia, Draghi’s government has taken a strongly pro-NATO stance, sending weapons and cash to help Ukraine while supporting EU sanctions against Russia.

Di Maio backed the premier’s strong support for Ukraine following Russia’s invasion, including sending weapons for Kyiv to defend itself.

In this he has clashed with the head of Five Star, former premier Giuseppe Conte, who argues that Italy should focus on a diplomatic solution.

Di Maio attacked his former party without naming Conte, saying: “In these months, the main political force in parliament had the duty to support the diplomacy of the government and avoid ambiguity. But this was not the case,” he said.

Luigi Di Maio (R) applauds after Prime Minister Mario Draghi (L) addresses the Italian Senate on June 21st, 2022. Photo by Filippo MONTEFORTE / AFP

“In this historic moment, support of European and Atlanticist values cannot be a mistake,” he added.

The Five Star Movement, he said, had risked the stability of the government “just to try to regain a few percentage points, without even succeeding”.

But a majority of lawmakers – including from the Five Star Movement – backed Draghi’s approach in March and again in a Senate vote on Tuesday.

Draghi earlier on Tuesday made clear his course was set.

“Italy will continue to work with the European Union and with our G7 partners to support Ukraine, to seek peace, to overcome this crisis,” he told the Senate, with Di Maio at his side.

“This is the mandate the government has received from parliament, from you. This is the guide for our action.”

The Five Star Movement stormed to power in 2018 general elections after winning a third of the vote on an anti-establishment ticket, and stayed in office even after Draghi was parachuted in to lead Italy in February 2021.

But while it once threatened to upend the political order in Italy, defections, policy U-turns and dismal polling have left it struggling for relevance.

“Today ends the story of the Five Star Movement,” tweeted former premier Matteo Renzi, who brought down the last Conte government by withdrawing his support.

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