Italy’s anti-establishment leaders near deal to resurrect coalition

Italy’s anti-establishment leaders near deal to resurrect coalition

Italy has been on everyone's minds this week.

A degree of calm, however, has returned with two anti-establishment parties renewing efforts to form a coalition government rather than force Italy into holding elections for the second time this year.

Salvini and Di Maio had agreed when they first tried to form a government that Giuseppe Conte, a little-known law professor, would be prime minister.

The crisis escalated on Tuesday when markets around the world sold off aggressively.

Apart from developments in Italy, investors are also looking to the upcoming euro zone consumer price data at 0900 GMT, which is expected to show inflation has accelerated to 1.6 percent in May. Here's a summary of what's going on in Italy, where the political situation is developing rapidly.

Fresh elections are now looming as the most likely outcome of the long-running political saga sparked by an inconclusive poll in March.

Nearly three months after inconclusive elections on March 4, Di Maio and Salvini finally sealed a deal during a meeting at the Rome parliament on Thursday. As a result, it was hard to see how the government could function.

Amid growing political turmoil, economist Carlo Cottarelli was tapped on Monday to lead Italy to early elections, possibly as soon as after the summer, after populist parties failed to convince the president their Cabinet picks wouldn't destroy worldwide investors' faith in the country.

The deadlock follows an aborted attempt by the 5-Star Movement and right-wing League to form a government. Several commentators were quick to suggest that Conte had been chosen simply because he would do the bidding of the two party leaders who would in turn hold key cabinet posts. Five Star became the single biggest party.

Before a coalition could crystallize, President Mattarella - who must approve every major position in the government - rejected the two parties' nomination for finance minister.

Analysts predict the two parties will drop their insistence on Savona as finance minister in order to resurrect their bid to govern together.

The president's top spokeswoman made it clear the USA would not interfere in any political or economic developments in Italy.

He also claims that Italy's decision to join the euro back in the 1990s has "halved Italians' purchasing power". At the very least, "I do think that if negative news about non-farm payrolls comes out, we´re going to see dollar losses", said Michael Diaz, head of foreign exchange at XE in Buena Park, California in reference to the Bureau of Labor Statistics jobs report that will be released on Friday morning. "The truth is that they don't want us in government".

"Let's find someone of the same calibre as Savona, who would still remain in the government in another ministry", Di Maio said on Facebook after meeting with President Mattarella.

"Definitely", she said. "I think we can see what an impact Brexit has already caused to the European Union in general, and if Italy fails to form a government that might be still pro-European and still dedicated to the reforms and getting the country back within the fiscal stance, that might be a bigger harm to the whole of Europe".

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