Merkel offers carrot to Italy but keeps the stick in reserve

Bloomberg

Germany is ready to challenge any attempt by Italy’s populist government to flout European Union regulations or seek special treatment from the bloc.
German Chancellor
Angela Merkel was among the first to congratulate her Italian counterpart, Prime Minister Giuseppe Conte, but if necessary she is prepared to make clear to the new government in Rome that it must stick to the fiscal rules governing the euro area, according to two German government officials.
As Europe’s biggest economy, Germany loomed over the euro’s convulsions for most of the past decade as the chief champion of the debt and deficit limits that bind members of the single currency. Germany and Merkel, along with Paris and Brussels, were frequent targets of the Five Star and League campaigns during the Italian election which catapulted a populist
government to power on a platform of budget-busting spending.
In her message of congratulation to Conte, a law professor with no political experience picked to head the coalition, Merkel said that she looked forward “to continuing and to further deepening our close partnership,” reminding him that “Italy and Germany have close and friendly relations in all areas — political, economic and cultural.” As founding members of the EU, “our cooperation builds on our common European values,” she said.
Merkel and Conte will hold their first bilateral meeting at the Group of Seven summit in Canada at the end of the week. The chancellor met with ECB President Mario Draghi
in Berlin.
Merkel, sensitive not to further stir anti-German rhetoric in Italian politics, will continue to say as little as possible in public on Italy, said one of the officials. She hopes that League leader Matteo Salvini will tone down his anti-euro and anti-German rhetoric in office, the official said.
The on-off formation of the euro-skeptic Italian government rattled markets, sending yields on the nation’s sovereign debt soaring and stirring memories of the euro crisis. As Conte’s team prepares for parliamentary confidence votes, Five Star and the League have denied that they want to leave the EU or the euro.