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November 24, 2018 | Savini Threatens Government Collapse and New Italy Elections if Deficit Changes

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Matteo Salvini laid it on the line in no uncertain terms today. He’s not changing the budget as the EU demands.

Please consider Salvini Threatens Italy Government Collapse If Deficit Changed.

Italy’s Deputy Prime Minister Matteo Salvini, enjoying a steady climb in public opinion polls, said he would bring down the government if the coalition’s budget deficit target was changed.

The remarks by Salvini were quoted by newspaper La Repubblica hours before the country’s prime minister, Giuseppe Conte, was scheduled to make an attempt in Brussels to convince the European Commission that the country’s budget is sound. That includes the 2.4 percent deficit goal for 2019 that has become a lightning rod for Commission objections.

“The 2.4 percent deficit target can’t be touched, otherwise I will bring down the government,” Repubblica quoted Salvini as saying in a telephone call to Conte. The report said Salvini was willing to make only minor concessions in next year’s spending plan.

Italy’s budget plans and spat with the European Union have roiled its bond and stock markets in recent weeks. Salvini has steadily pulled ahead of the country’s other deputy premier, Five Star Movement head Luigi Di Maio, as the public face of hardline opposition to the EU.

Bluff? Against Whom?

Salvini clearly does not want to change the budget.

But is this a warning to the EU, to the Five Star Movement (M5S), its coalition partner, both, or neither?

One thing is certain: Italy’s budget is totally unsound.

Eurointelligence Comments November 22

The one thing even more unsustainable than Italy’s fiscal position is the political stability of the Italian government. What undermines it is yesterday’s unsurprising further preliminary move by the European Commission to launch an excessive deficit procedure against Italy. The way things are going, we doubt that this administration can remain in office for very long, given that the bond spreads are now persistently over 300 basis points. We pointed out in the past that there are intelligent strategies to defy the European Union and its far-too-rigid fiscal rules. You can do this the French way or even boost spending through vouchers that act like a parallel currency. What you cannot do is simply ignore the rules, and sit back. Simple defiance does not work.

From reading this morning’s Italian papers, we note an increased focus on the future of the current coalition. The Five Star Movement has no alternative power options, but the Lega could at some stage pull out and form a coalition with its old partners, Silvio Berlusconi’s Forza Italia and the Brothers of Italy. Such a constellation could at best govern as a minority government only, and for a short period, perhaps with the task to correct the fiscal position. New elections would follow inevitably. Opinion polls have registered strong gains by the Lega. The PD is still lingering at the levels of the last elections, but may gain, especially if Marco Minniti, the popular former interior minister, were to succeed in his bid for the party leadership. The support of Five Star is holding up – especially as its support for a basic universal income and a reversal of the pension reforms remain popular. But Five Star has no natural coalition partner other than the Lega. And Matteo Salvini has no interest in presiding over a financial crisis.

Italy Political Parties

Italy Coalition Math

Collapse Threat Real?

Would Salvini really collapse the government? For What?

He would be back in bed with a very untrustworthy partner, former prime minister Silvio Berlusconi. Just to get to 47% support requires about 4% from the Brothers of Italy as well.

Right now, Salvini is calling the shots. Together with M5S, they hold a commanding 59.2% of the vote.

Anything Can Happen With New Elections

Look at Theresa May’s misjudgment in calling for new elections. She now hangs on by a thread.

Anything can happen in these kinds of political power plays.

Then again, never underestimate the pompous belief politicians have in themselves.

Mike “Mish” Shedlock

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November 24th, 2018

Posted In: Mish Talk

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