Snap Italy election raises risk of populists taking control

Bloomberg

Italy is heading for a snap election that may boost the chances of a populist government taking power.
Luigi Di Maio, head of the anti-establishment Five Star Movement, and Matteo Salvini, who leads a center-right alliance and the anti-immigrant League, are pressing for an election in July after efforts to form a government broke down. The populist rivals met in Rome for the first time in since the March election following weeks of phone contacts.
Italian bonds fell by the most in two months.
“Early ballots would change the outlook of political risk,” Barclays Plc senior European economist Fabio Fois wrote in a note to clients. “An outright anti-system government between Five Star and the League could be increasingly likely.”
Although both parties are now gearing up to fight a campaign, their talks point to a potential tie-up after the next vote, especially if they emerge strengthened. President Sergio Mattarella is trying to resist the populist tide.
The 76-year-old former constitutional court judge, sponsored as head of state by the center-left Democratic Party, wants lawmakers to back a “neutral government” to steady the ship before going to the polls again and is set to name a premier-designate, according to a senior state official. Mattarella said he wants to hold off elections for the rest of the year since turnout might suffer in a summer vote, and a fall date would jeopardise the 2019 budget.

Salvini Gains
The spread between Italy’s 10-year bonds and similarly dated
German bunds widened by as much as 10 basis points to 133 basis points, compared with 114 basis points two weeks ago.
Salvini has been the main beneficiary so far of the post-election quarreling. The League has seen support rise to 24.4 percent from 17.4 percent on polling day, according to an SWG opinion poll.
Five Star is still the most popular single party, slipping half a percentage point to 32.2 percent, while the center-right alliance headed by the League rose to 38.5 percent from 37.1 percent. Salvini has been stealing support from his ally Silvio Berlusconi, who’s seen his Forza Italia party slip to 9.4 percent.
With the outgoing Democratic Party holding steady at about 19 percent, there’s also a risk that another election would produce another political stalemate, leaving the country potentially ungovernable. That’s the problem that Spain faced after successive elections in 2015 and 2016 before Mariano Rajoy managed to secure enough support for a second term. Salvini’s loyalty to Berlusconi has been one major factor in the stalemate of the past two months.