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Odd Couple Fails

Italy's "odd couple" government, an alliance between Left-wing M5S party and the Right-Wing League party collapsed today.

The collapse was long in the making as the only thing the parties had in common was an anti-immigration stance. At the time the coalition formed, the Five Star Movement (M5S) was the senior party with the League (previously the Northern League) as the junior party.

The League now dominates the polls. The collapse was triggered last week when the 5 Star Movement (M5S), Salvini's coalition partner, attempted to derail a high-speed rail link that the League (Lega) wanted.

The collapse became official today with the resignation of Giuseppe Conte, the compromise Prime Minister. Neither the leader of M5S nor the League held the highest office.

Italian Prime Minister to Resign, Declaring End of Coalition

Please consider Italian Prime Minister to Resign, Declaring End of Coalition

Prime Minister Giuseppe Conte announced his resignation in a speech to the Senate on Tuesday, blaming far-right Interior Minister Matteo Salvini for causing a political crisis as Italy looks to draw up a challenging budget to keep its parlous finances on track.

Mr. Salvini, a rising political force from Europe’s insurgent far-right, began pressing for snap elections on Aug. 8, in a bid to capitalize on opinion polls that show his nativist League has become Italy’s most popular party, with around 36% support. The League has served as the junior coalition partner of the populist 5 Star Movement since summer 2018.

Leaders of 5 Star are exploring the only plausible alternative to snap elections the League would likely win: a new coalition government with their longstanding foes, the mainstream center-left Democratic Party. Talks in coming days could show whether such a coalition is possible or early elections are needed.

Italy’s power struggle is a symptom of Europe’s continuing political upheaval after a decade of crises including the economic depression in the periphery of the eurozone and the pressures of rising immigration from poor and war-torn parts of Africa and the Middle East.

Mr. Conte, a nonparty premier close to 5 Star, attacked Mr. Salvini for undermining the government in which Mr. Salvini has served as interior minister since June 2018. Mr. Salvini said on Aug. 8 that he wanted to “ask the Italians if they want to give me full powers.” Some critics pointed out that Italian Fascist leader Benito Mussolini used a similar phrase to demand power in 1922.

“We don’t need people with full powers, but people with a culture of (respect for) institutions and a sense of responsibility,” Mr. Conte told the Senate on Tuesday. He accused Mr. Salvini of putting personal and party interests ahead of the country’s needs and of lacking respect for Italy’s constitution.

“We are the only supposed fascists who want a vote,” Mr. Salvini replied.

What's Next?

In the last election, M5S ran on a platform against he mainstream center-left Democratic Party (PD Partito Democratico).

Now, M5S needs to enter a coalition with PD if it wants to stop an early election.

That's another coalition that cannot possibly last, assuming it gets off the ground in the first place.

But will it?

Bond Yields Say "Expect a New Coalition"

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The reaction of the bond market is telling. It welcomes the collapse of the current coalition, clearly expecting M5S and PD to join forces.

But let's explore "what if?" starting with a look at the polls.

Italian Election Polls

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It's possible the bounce in M5S is a resulst of actions by Salvini but I discount that possibility.


Look at the Gpf poll on July 15-18: same polling firm same result.

All the other polls with eight different polling firms all suggest something else. It's highly likely the League has between 35% and 38% of the vote with M5S about 17% to 18% of the vote.

What If Elections?

It's not precisely clear what would happen if there were elections now.


By Italian elections rules, coalitions take precedence over parties. Thus if M5S and PD formed a coalition it could command a huge majority of the seats. If not, the League would win.

Salvini's Gamble

It's one thing for M5S and PD to join a caretaker government now as opposed to them entering an official coalition for the next election.

That is Salvini's gamble.

He bets such a coalition will not form or it will quickly collapse if it does form.

Critical Juncture

If there is another election and Salvini wins, a eurosceptic, anti-EU, anti-immigration politician will become the leader of the third largest country in the Eurozone.

Mini-Bot Parallel Currency

Recall that Salvini proposed a "Mini-Bot" parallel currency and also note that Italy is in huge defiance of EU spending rules.

On June 18, I wrote Meet the Mini-BOT: Italy Will Break Up the Eurozone.

Today, the Italian 10-year bond movement discounts that possibility. But sooner or later the mini-bot and Salvini will return in a major way, perhaps within weeks.

Mike "Mish" Shedlock