All change in Italy, Spain as leaders grab reins of power

Bloomberg

Spain’s new leader began harnessing the unlikely forces that brought him to power while a populist government took over in Italy, capping a week of political drama that sent financial markets into turmoil as the future of the euro region again rose to the fore.
In Madrid, Socialist leader Pedro Sanchez was sworn in by King Felipe VI as the seventh prime minister of Spain’s democratic era after his appointment was published in the official gazette. He seized the opportunity to tap outrage over a corruption scandal involving the governing People Party to corral Catalan separatists and Basques into backing his no-confidence motion in Prime Minister Mariano Rajoy.
Italy’s Five Star Movement and League parties took power in a spectacular reversal of political fortunes that brings an end to three months of deadlock. Giuseppe Conte, 53, a law professor with no political experience, was sworn in as prime minister along with his cabinet.
The change at the top of the euro region’s third and fourth-biggest economies comes
after markets went into freefall on the prospect of a possible resurgence of the crisis that gripped the single currency in recent years.
While Spain is likely to stay pro-European Union, Italy’s new government threatens to further challenge the EU on budget rules and immigration, just as it’s under pressure from US President Donald Trump on trade, the Iran nuclear deal and defense spending.
“For those that are far removed from euro-zone developments, Spain and Italy may look as if they have many similarities, but in reality there are important differences,” said Vasileios Gkionakis, a strategist at UniCredit Group in London. “In Spain, even new elections are unlikely to lead to changes that will affect its stance towards the EU or monetary union.”

Cutting a Deal
The government in Rome was pieced together after weeks of Byzantine wheeler-dealing. Five Star’s Luigi Di Maio and the anti-immigrant League’s Matteo Salvini managed to mesh their populist programs only to pull the plug on a government at the last minute after the president vetoed their pick of a euroskeptic finance minister.
Di Maio and Salvini will now serve as deputy premiers, with economist Giovanni Tria, 69, as finance minister.
Euroskeptic economist Paolo Savona, 81, the rejected finance minister, will be responsible for European affairs.
The new government is expected to face votes of confidence in the two houses of parliament on Monday and on Tuesday. Italian bonds gained on Thursday after the news of the Five Star-League deal, with the 10-year yield falling about 18 basis points to 2.7 percent before rising again to 2.8 percent. It’s still up from 2 percent from two weeks ago.
Markets, meanwhile, embraced Spain’s change of leadership. Sanchez’s next challenge — forming a government with only 84 deputies from his own party in a parliament of 350 — may be even harder than ousting Rajoy, a hitherto perennial survivor in Spanish politics.
Sanchez is expected to announce at the start of next week who the members of his new government will be, El Confidencial report.