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August 8, 2019 | Italy’s Coalition Government Collapses: What’s Next?

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, head of Italy’s League party, called for a snap election, citing differences with the 5 Star Movement.

A marriage of convenience just ended.

The 5 Star Movement (M5S), Salvini’s coalition partner, attempted to derail a high-speed rail link that the League (Lega) wanted.

M5S failed, but that is the end of the coalition as Salvini Calls for Snap Elections.

What is the dispute about?

Political clashes over the project for a railway between the Italian city of Turin and French city of Lyon led Prime Minister Giuseppe Conte to put tenders on hold in March.

The multibillion-euro TAV (Treno Alta Velocità) link involves digging a 58km (36-mile) tunnel through the Alps. It is bitterly opposed by Five Star on environmental and cost grounds.

Supporters of the project say it would halve the travel time between the two cities to just two hours. The tunnel would also make it possible to travel from Paris to Milan in around four hours, down from nearly seven.

The project was launched 20 years ago and part of it has already been dug. It is scheduled for completion in 2025.

Junior Partner No Longer

The League is the junior partner in the coalition based on the last election. It will be the senior partner in a different coalition following the next election if not an outright winner.

Last Elections

Marriage Not Made in Heaven

M5S is a leftist party while the League is anti-immigration, anti-Euro right-wing party with different political priorities.

The coalition lasted as long as it did because they found common anti-immigration ground coupled with M5S’ dislike of its other coalition possibilities.

Italian election math is complicated. The League might need another coalition partner but it may not have to top the 50% mark to have a solid majority.

Forza Italia, is a traditional ally, but Salvini might not want to deal with Italy’s former prime minister Silvio Berlusconi, the current head of Forza Italia.

Vulture Politics and Sinking Ships

Reuters offers this interesting comment about Vulture Politics:

Italian politicians have a long tradition of switching parties — in the last legislature almost 350 of the 945 parliamentarians changed sides for various reasons. They also have a habit of abandoning sinking ships.”

Parliament is in recess and the President, Sergio Mattarella, largely a figurehead except in matters like this, needs to confirm there is no longer a coalition government that works.

Immigration Policy

Three days ago, Bloomberg reported Salvini Eyes Enhanced Powers as Italy Government Wins Key Vote.

A recently passed bill gives Italy’s police and military enhanced powers to stop and seize rescue vessels picking up illegal migrants in the Mediterranean. In addition to serving as one of Italy’s two deputy premiers, Salvini also runs the interior ministry, which controls the country’s police and border forces.

Parallel Currency and Budget Deficits Back In Play

In addition to immigration policy, Salvini wants tax cuts and more spending.

Salvini has also threatened to issue a parallel currency.

These issues and more will again return to the front burner.

The EU will not be pleased, to say the least.

Mike “Mish” Shedlock

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August 8th, 2019

Posted In: Mish Talk

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