Italy: What the New Government Means for Europe

Yesterday was amazing, suddenly Italy had a new government! In this article, just published on Impakter, I explore what it really means:

On 31 May, Italian politics took an unexpected, spectacular turn. President Mattarella approved the very government he had vetoed – as was his constitutional right –  four days earlier. Now the two big winners of the March elections, Luigi Di Maio’s Five Star Movement (M5S with  33 percent of the votes), and Matteo Salvini’s The League (17 percent) finally got what they wanted.

It had taken 88 days of hard negotiations to get there. And the unlikely alliance between an extreme right party (The League) with a centrist party (M5S) that has socialist roots (in the Partito Democratico, or PD). Both are populists and anti-establishment, The League with its base in Northern Italy and support from business, M5S with support from young people and the South and a fluctuating political platform shaped by social-media.   Di Maio and Salvini had hammered a 56 page contract for a so-called “government of change” and selected as premier an unknown non-politician, the economist Paolo Conte.

What made Mattarella change his mind? Much of it appears to be the result of unexpectedly nimble political work on the part of Di Maio, who, despite his youth and lack of experience, is apparently endowed with unusual political instincts. Improbably, after insulting Mattarella and calling for his impeachment, he withdrew the accusations and instead met the President eye-to-eye. And was  able to change his mind. The idea of a “technical” stop-gap government to prepare a return to the polls was abandoned and Conte came back with a new list of ministers.

What is remarkable is that the new list had only one notable modification: Paolo Savona, the Euro-skeptic 81 year-old economist Mattarella had objected to, was moved from Treasury where he had been originally assigned at Salvini’s request, to Minister for Relations with Europe.

An apparently slight correction but a significant one: Savona’s new position is much weaker than at Treasury, he is a minister without portfolio (i.e. without the support of a full ministry). The new man in the Treasury post is Giovanni Tria, a well-known economist with a long career both nationally and internationally – in short, a more moderate figure.


On the next day, the international press, even staid and serious journals like Bloomberg, reacted with emotional headlines: the Populists have surged to power in Italy! They will take Italy out of the Euro and Europe!

Despite the scary headlines, investors took it in stride, and even welcomed the “stability” that a new government implied, as the Wall Street Journal was quick to note. In short, they have set aside the likelihood that Italy will exit the Euro.

Yet, the new man at Treasury, Giovanni Tria is really not very different from Paolo Savona. He agrees with Savona on Europe and that a reform of the Euro is essential. On the face of it,  pulling Savona from one key Ministry to another less powerful position seems like a gratuitous game.

How come markets are reassured by Tria and scared by Savona? What do investors know that the journalists don’t, what really happened?


First, the scare over Savona was vastly exaggerated – almost a case fake news.

Read the rest on Impakter, click here.


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