Italy’s populists are on a roll as coalition looks to pass confidence votes

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Italy’s new populist government, made up of a coalition of relative political newcomers, will face its first test Tuesday.

The Italian Senate will debate and then hold a vote of confidence on the new cabinet and government program, before the Parliament’s other chamber holds a similar vote. The two anti-establishment parties, Lega and the Five Star Movement (M5S), now hold a majority in both houses so the votes of confidence are not expected to meet any stumbling blocks.

That’s not the say the path to get to this point has been simple, or that the one ahead is clear.

Both parties are largely untested in power and the alliance came after both won a significant share of the vote in March elections which saw traditional parties shunned in favor of the new guard.

Lega and M5S are not natural bedfellows aside from their anti-establishment streaks and the parties have taken three months of discussions to agree a coalition, cabinet and program of government.

The result is a radical departure from the norm with cabinet ministers including a variety of professors and some controversial ministers — such as euroskeptic Paolo Savona, who has called the euro a “historic mistake” (he was initially nominated to be economy minister but the choice was rejected by Italy’s president). The coalition has also promoted a program of tax cuts, the mass deportation of illegal migrants, a guaranteed basic income and an overhaul of recent labor and pension reforms.

Lega leader Matteo Salvini is deputy prime minister and interior minister while M5S leader Luigi Di Maio is the new minister of labor and industry. The new prime minister is a largely unknown law professor called Giuseppe Conte.

As ever, the course of Italian politics never did run smooth and there have already been hiccups to nominating a prime minister to head what will be Italy’s 67th government since 1946.

A brief contender for the (some would say unenviable) job of governing Italy was Carlo Cottarelli, an economist and former director of the International Monetary Fund.

For a few days last week Cottarelli looked like he could be interim prime minister ahead of possible new elections later this year — a prospect that roiled markets. This came amid disagreements between President Sergio Mattarella and Lega-M5S over the choice of economy minister — a dispute that led Giuseppe Conte to resign.

But Lega and M5S compromised by withdrawing their controversial choice of Savona to lead the Economy Ministry and designated him (perhaps even more controversially) as European Affairs minister, prompting Conte’s return and reinstatement as prime minister.

Cottarelli told CNBC Monday that the market reaction prompted all the parties involved to realize that it would be better to have a political government and avoid new elections “that would have been centered on the euro, rather than a technical government which would not have passed the parliament’s confidence vote and would not have been in full control of fiscal tools.”

“What happens next depends on what the government says, what the government does and what happens next to the international economy and whether the growth process continues or not,” he added.

Needless to say, the new government is largely critical of Brussels and this is what worries euro zone officials. They are wary of a debt-ridden Italy overspending and, crucially, abandoning EU fiscal rules as Lega and M5S have signaled they could do. The embattled euro zone nation has a debt pile of around 2.3 trillion euros ($2.7 trillion) and a debt-to-gross domestic product ratio of around 130 percent.

The new Italian government should tread carefully with Europe, Cottarelli said, if it wanted to be listened to.

“If you go to Europe and try to shout — and try to get what you want by shouting — I don’t think that will be accepted very well. But if the new Italian government goes to Europe and tries to present the Italian case, perhaps more forcibly than in the past but in a reasonable way, perhaps they (Europe) will react favorably,” he told CNBC Class in Italy.

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