Euro crawls off 6.5-month lows, Italy tries to allay investor concerns

Dwayne Harmon
May 28, 2018

Mattarella has summoned Carlo Cottarelli, an economist formerly with the International Monetary Fund, for talks at 0930 GMT, with a temporary technocrat government on the table as Italy faces the strong possibility of new elections in the autumn.

Italy's Prime Minister-designate Carlo Cottarelli said on Monday that he will put together a government "very quickly" to accompany the country to fresh elections, to be held in the fall or early next year.

Financial markets tumbled last week on fears the coalition being discussed - a marriage of the far-right League and the populist 5-Star Movement - would unleash a spending splurge and dangerously ramp up Italy's already huge debt, which is equivalent to more than 1.3 times the nation's domestic output.

"Mr Mattarella's refusal on Sunday to approve a proposed eurosceptic economic minister gave the euro a much-needed push", said Hussein Sayed, chief market strategist at FXTM.

Politics in Italy have taken a dramatic turn with the tentative right-wing coalition, which formed after a March election, unraveling.

Early in the European session, the euro, Italy's government debt and its FTSE MIB stock index all rose in opening trades. "Then parliament would be dissolved with elections at the beginning of 2019", Cottarelli said.

"Either the government gets off the ground and starts working in the coming hours, or we might as well go back to elections", Salvini said.

Italy has been without a government since elections on 4 March, at which voters flocked to anti-establishment and far-right parties.

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Conte abandoned efforts to form a government after Mattarella refused to accept his cabinet lineup.

Italy has been plunged back into political turmoil after the president vetoed a eurosceptic finance minister, prompting the two populist parties to call for his impeachment.

Both men have vowed to vote against a so-called technocratic or non-partisan government, if such a coalition comes to a confidence vote in parliament.

More likely than an actual impeachment, however, the new populist platform will nearly certainly be modified to include a reworking of presidential powers to impede the holder of the office-who is not directly elected by citizens-from contravening the democratically expressed will of the people.

Both League leader Matteo Salvini and the 5-Star candidate Luigi Di Maio have criticized Mattarella's resistance to Savona, insisting it reflected the displeasure of "Berlin" and other establishment powers rather than true concern for Italians. Under that clause, parliament can seek to remove a president if a simple majority of lawmakers votes in favour.

An angry Di Maio, of the 5-Star Movement, made the unprecedented demand after Mattarella rejected a euroskeptic for the key post of economy minister - virtually foiling a bid to form Europe's first fully populist government.

The centre-left Democratic Party (PD) and the centre-right Forza Italia party, led by controversial former PM Silvio Berlusconi, each denounced calls for impeachment.

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