MILAN (Reuters Breakingviews) - Italy’s next economy minister is the one for investors to watch. The anti-establishment 5-Star Movement and right-wing League have proposed little-known academic Giuseppe Conte to be prime minister of their radical government. Yet the person they nominate to steer Italy’s finances matters more for the indebted country’s future.
President Sergio Mattarella will probably decide on Wednesday whether to accept Conte as prime minister. The politically inexperienced law professor appears to have had no say in drafting the budget-busting government “contract” between 5-Star boss Luigi Di Maio and his League counterpart Matteo Salvini. Conte may not be able to overrule the party leaders if they take cabinet posts, as expected. It’s an inauspicious start for a government that has promised to “rewrite Italy’s history”.
With the premier downgraded to the role of spokesman, investors should focus on the economy ministry to gauge the government’s attitude towards the single currency. Italian news reports that professor Paolo Savona – who says the euro is a “German cage” – is being considered for the post pushed up the spread on yields between Italian and German 10-year government bonds to 180 basis points. With public debt of 2.3 trillion euros, Italy can ill afford higher borrowing costs.
The nascent executive’s attitude towards the euro remains ambiguous. While the coalition’s final agenda does not call into question Italy’s membership of the single currency, an earlier draft called for the government to create procedures to leave the euro. Some prominent League members, including economic spokesman Claudio Borghi, are critical of the European Union’s fiscal compact and want Italy to abandon it. Salvini considers the euro a mistake. Eurobarometer opinion polls show Italians have gone cold on the single currency. However, 5-Star has ditched an earlier proposal of holding a national referendum on euro membership.
With an eye on the financial markets, Mattarella may not accept an unorthodox choice for Italy’s most important cabinet post. There are alternatives. Senior League member Giancarlo Giorgetti, a former head of the budget committee of the lower house of parliament, would be a more moderate choice. The new minister’s attitude towards the euro will go a long way towards determining investors’ faith in Italy.
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