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Italy enters second day of talks aimed at solving political crisis

Italy enters a second day of crisis talks between the president and party leaders on Thursday after the prime minister resigned.

Italy enters second day of talks aimed at solving political crisis
Italian president Sergio Mattarella. Photo: Miguel Medina/AFP

President Sergio Mattarella will meet the main parties, including the anti-establishment Five Star Movement (M5S) and far-right League, after the breakdown of their dysfunctional coalition.

Prime Minister Giuseppe Conte resigned on Tuesday after months of alliance sniping and a bid by League leader and Interior Minister Matteo Salvini to force a snap election, just 14 months since coming to power.

The nationalist, populist government's demonization of migrants, promoted by Salvini in particular, and attempts to flout EU budget rules had angered many European leaders. Mattarella met the leaders of both houses of parliament on Wednesday and has been trying to find a way forward.

The formation of a new coalition, a short-term technocratic government or an early election — more than three years ahead of schedule — are the main options.

READ ALSO: What next for Italy? These are the five likeliest scenarios


Photo: Vincenzo Pinto/AFP

Conditional support

A proposed alliance between M5S and opposition centre-left Democratic Party (PD) — previously almost unthinkable — appears to be gaining traction, with PD leader Nicola Zingaretti saying he is ready to make a deal.

The PD and M5S have been at each other's throats for years — but an alliance would see Salvini kicked out of government, a powerful motive for compromise.

Zingaretti has said the party would back an M5S coalition dependent on five conditions, including a radical shift in Italy's zero-tolerance policy on migrants crossing the Mediterranean.

He later told La 7 television he was also against the idea of Conte staying on as prime minister.
M5S would like Conte to remain in place but did not give much away, saying it would “wait for the end of consultations”.

In a bid to get a PD-M5S alliance off the ground, former PD premier Matteo Renzi has said he will not participate. Many in the anti-establishment party view him as elitist.

Salvini, who is also deputy prime minister, on Wednesday mocked his former coalition allies, saying: “In a week they have gone from the League to Renzi.”

He added: “No matter which government emerges, its goals will be against the League.”

TIMELINE: How did Italian politics get to where it is today?


Photo: Andreas Solaro/AFP

Risk of recession

The end of the unstable coalition government in the eurozone's third-largest economy has so far been welcomed by the markets, with a sharp rise in the Milan stock market on Wednesday.

The country's debt ratio — 132 percent of gross domestic product — is the second-biggest in the eurozone after Greece, and youth unemployment is currently above 30 percent. Governments have consistently struggled to bring down debt levels and unemployment.

“Italy's disharmonious political backdrop and the country's budgetary challenges extend well before the sovereign debt crisis,” said Rabobank analyst Jane Foley.

Rome needs to approve a budget in the next few months or potentially face an automatic rise in value-added tax that would hit the least well-off Italian families the hardest and likely plunge the country into recession.

“(The crisis) arrives at a critical juncture for Europe amid the risk of recession in Germany and the formation of the new European Commission, and could contribute to deteriorate significantly the confidence on the eurozone,” said Andrea Montanino, chief economist at the General Confederation of Italian Industry.

After last year's election it took months of wrangling before a government was formed. Mattarella has made it clear he wants talks to conclude quickly but splits within the PD and M5S, as well as sharp policy differences, could complicate coalition efforts. A PD-M5S tie-up would realistically also need support from smaller parties to be an effective government.  
 

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ENERGY

What does the shut-off of Russian gas supplies mean for Italy?

After Russian energy giant Gazprom suspended gas deliveries to Italy on Saturday, many are wondering what consequences the stoppage will have on the country’s energy supplies.

What does the shut-off of Russian gas supplies mean for Italy?

What’s going on?

Over the past three days, Italy has received none of the gas supplies it expected from Russian energy giant Gazprom. 

The impasse officially started last Saturday, when Gazprom announced it would not be able to deliver gas to Italy due to “the impossibility of gas transport through Austria” – Russian gas supplies are delivered to Italy through the Trans Austria Gas pipeline (TAG), which reaches into Italian territory near Tarvisio, Friuli Venezia-Giulia. 

READ ALSO: Russia suspends gas to Italy after ‘problem’ in Austria

Though Gazprom originally attributed the problem to Austrian gas grid operators refusing to confirm “transport nominations”, Austria’s energy regulator E-Control said that the Russian energy mammoth had failed to comply with new contractual agreements whose introduction had been “known to all market actors for months”. 

Additional information about the incident only emerged on Monday, when Claudio Descalzi, the CEO of Italy’s national energy provider ENI, said that supplies had been suspended after Gazprom failed to pay a 20-million-euro guarantee to Austrian gas carrier Gas Connect. 

Descalzi also added that ENI was ready to step in and deposit the guarantee itself in order to unblock deliveries to Italy.

Logo of Italian energy regulator ENI.

Italian energy regulator ENI said it was ready to pay Austrian gas carriers a 20-million-euro guarantee to unblock deliveries. Photo by Marco BERTORELLO / AFP

READ ALSO: Italy’s ENI ready to pay guarantee to unblock Russian gas

At the time of writing, however, no agreement between ENI, Gas Connect and Gazprom has yet been reached, with the stoppage expected to continue until Wednesday at the very least.

What would an indefinite stoppage mean for Italy’s upcoming winter season?

Though energy giant ENI appears to be confident that a compromise between all the involved parties will be reached shortly, the “indefinite shutdown” of the Nord Stream 1 pipeline in early September is somewhat of a menacing precedent. 

After fears of a long-term supply suspension cropped up over the weekend, outgoing Ecological Transition Minister Roberto Cingolani publicly reassured Italians that “barring any catastrophic events, Italy will have the whole of winter covered”.

It isn’t yet clear what exactly Cingolani meant by “catastrophic”, but the latest available data seem to suggest that Italy wouldn’t have to resort to emergency measures, chiefly gas rationing, should Gazprom halt deliveries indefinitely. 

Italian Minister for Ecological Transition Roberto Cingolani.

Outgoing Minister for Ecological Transition Roberto Cingolani said that, “barring any catastrophic events”, Italy will have enough gas supplies for the winter. Photo by Andreas SOLARO / AFP

In 2021, prior to Russia’s invasion of Ukraine, Italy received around 20 billion cubic metres of Russian gas per year, which accounted for about 40 percent of the country’s annual gas imports. 

But, thanks to the supply diversification strategy carried out by outgoing PM Mario Draghi and his cabinet over the past few months, Russian gas currently accounts for, in the words of ENI’s CEO Claudio Descalzi, only “about nine to 10 percent” of Italian gas imports.

READ ALSO: Italy’s Draghi criticises Germany over latest energy plan

Granted, Italy still receives (or, given the current diplomatic deadlock, expects to receive) a non-negligible total of 20 million cubic metres of Russian gas per day. But, should supply lines between Rome and Moscow be shut off until further notice, Italy could fall back on existing gas stocks to meet winter consumption demands. 

Last Wednesday, Cingolani announced that the country had already filled up 90 percent of its national gas stocks – Italy has nine storage plants for an overall storage capacity of 17 billion cubic metres of gas – and the government was now working to bring that number up by an additional two or three percentage points.

These supplies, Cingolani said, are set to give Italy “greater flexibility” with respect to potential “spikes in winter consumption”.

Gas storage station in Loenhout, Belgium.

Italy has nine storage plants for an overall storage capacity of 17 billion cubic metres of gas. Photo by Kenzo TRIBOUILLARD / AFP

Finally, Italy is expected to receive an additional four billion cubic metres of gas from North Europe over the winter months – deliveries which will be complemented by the first shipments of LNG (Liquefied Natural Gas) from Egypt.

Both of these developments are expected to further reinforce Italy’s position in the energy market for the cold season.

What about the long-term consequences of an indefinite stoppage?

An indefinite shut-off of Russian gas supplies would effectively anticipate Italy’s independence from Moscow by nearly two years – Draghi’s plan has always been to wean the country off Russian gas by autumn 2024.

However, the Italian government’s strategy is (or, perhaps, was, as a new government is about to be formed) centred around a gradual phasing out of Russian supplies. As such, although not immediately problematic, a ‘cold-turkey’ scenario might create supply issues for Italy at some point during 2023.

READ ALSO: EXPLAINED: How much are energy prices rising in Italy this autumn?

Granted, Algeria, whose supplies currently make up 36 percent of Italy’s national demand, is expected to ramp up gas exports and provide Rome with nine billion cubic metres of gas in 2023.

But, even when combined with LNG supplies from several African partners – these should add up to a total of four billion cubic metres of gas in 2023 – there’s a risk that Algerian gas might not be able to replace Russian gas on its own.

An employee works at the Tunisian Sergaz company, that controls the Tunisian segment of the Trans-Mediterranean (Transmed) pipeline, through which natural gas flows from Algeria to Italy.

Algerian gas supplies, which reach Italy through the Trans-Med pipeline (pictured above), might not be enough to replace Russian gas in 2023. Photo by Fethi BELAID / AFP

Therefore, should an indefinite shut-off be the ultimate outcome of the current diplomatic incident between ENI, Austria’s Gas Connect and Russia’s Gazprom, Italy, this time in the person of new PM Giorgia Meloni, might have to close deals with other suppliers or ask existing suppliers to ramp up production. 

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