August 20, 2019 / 7:00 PM / 5 months ago

Breakingviews - Italian odd-couple trade is market’s better hope

Italian Prime Minister Giuseppe Conte is pictured before a meeting with Russian President Vladimir Putin in Rome, Italy July 4, 2019. REUTERS/Yara Nardi

NEW YORK (Reuters Breakingviews) - RIP the odd couple of European politics. The year-old pairing of Italy’s right-wing League with the anti-establishment 5-Star Movement, which ended on Tuesday with the resignation of Prime Minister Giuseppe Conte, was always destined for trouble. Investors in Italian assets, though, will be hoping for a revival of the theme.

In an hourlong speech to the Senate, Conte did a creditable job of laying out the case for the creation of a new government, with him possibly at the helm, but excluding the League, whose leader Matteo Salvini he called a risk to the nation. As Conte spoke, the Republic of Italy’s cost of borrowing money fell, as it has over the past few weeks amid optimism that a new parliamentary majority could be scrambled together without Salvini’s party, which leads in the polls.

Make no mistake: A partnership between the 5-Star and the center-left Democratic Party (PD) would create a duet as shaky as the one it replaces. But it would have certain market-soothing qualities. It would be decidedly friendlier to the European Union and its rules. Both the 5-Star and PD supported the nomination of Ursula von der Leyen as president of the European Commission. The League did not. And it would almost certainly adopt greater fiscal rectitude.

Look no further than Salvini’s response to Conte. He castigated Brussels for impoverishing Italy and argued for 50 billion euros in additional spending, proclaiming: “I don’t want Italy to be a slave to anyone.” Bond investors aren’t slave-drivers, but they know economic discipline when they see it.


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