Italy seeks new PM as banks languish
Italy’s government crisis may be over in less than a week, with president Sergio Mattarella aiming to name a successor to outgoing prime minister Matteo Renzi before the EU summit on 15 December.
A presidential source told EUobserver the 75-year-old head of state is expected to make announcements on Monday (12 December), two days after finishing a 48-hour round of talks aimed at informing his pick for the next prime minister.
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Mattarella, who is working his way through a grueling schedule of 23 separate meetings with leaders of all parties, including the tiniest groups in parliament, will finish up on Saturday with the big players: Renzi’s Democratic Party (PD), the anti-establishment Five Star Movement (M5S) and the conservative Forza Italia of former premier Silvio Berlusconi.
The head of state has three choices: asking Renzi to soldier on, picking someone close to him like economy minister Pier Carlo Padoan or foreign minister Paolo Gentiloni, or relying on a less partisan figure like Senate president Pietro Grasso.
The idea is to form a short-lived administration, supported by more or less the same coalition that backed Renzi, to tackle urgent business and lead the country into early elections in the first half of 2017, the presidential source said.
Leaving Renzi in charge would minimise political disruption, but accepting the task would amount to a major loss of face for the outgoing premier, who'd made it a point of honour to quit if beaten in December's referendum on constitutional reforms.
Renzi's successor unclear
The outcome, widely seen as a personal rebuke of the 41-year-old leader, was a resounding 59-41 percent rejection of proposed changes.
Renzi, commenting on the result, is reported to have said, “I didn't think they [the Italians] could hate me so much,” according to a behind-the-scenes report from Corriere della Sera newspaper.
Whoever is installed in the hot prime ministerial seat, at the Palazzo Chigi, will have their hands busy: Italy needs new elections laws, risks a major banking crisis, is under pressure from the European Union to tighten its budget plans, and needs to follow up relief and reconstruction work in earthquake-stricken areas.
Voting rules require a fix because, following the rejection of constitutional reforms, Italy has different election regimes for its two chambers of parliament that are likely to produce conflicting majorities and prolong political instability.
A constitutional court, ruling on the election law for the lower house of parliament, due on 24 January, is expected to ratchet up the pressure for reform.
Polls suggest the opposition M5S could win control of the lower Chamber of Deputies after a run-off ballot with the PD, while the Senate, which enjoys equal powers with the lower house, would be roughly split in three, with a sizeable share of seats going to Forza Italia and other right-wingers.
Slovak prime minister Robert Fico – who has no love lost for Renzi after his call to cut EU funding to nations that refuse to take in migrants – blamed the outgoing Italian leader for opening a path to power for M5S and its radical calls for a referendum on Italy’s euro exit.
“It was evident that Renzi would get a licking, and he received a sound one,” Fico said on Thursday in the Slovak parliament, according to the TASR news agency.
“I dare to say that Renzi is directly responsible for any potential destabilisation to come within the eurozone in the next few months, because he’s dragged a domestic political agenda into matters that influence not only Europe but the entire world,” he said.
Yet, a M5S government is probably not around the corner.
It is unclear how election laws may be tweaked, but the expectation is that Italy will veer towards a proportional system that could make it all-but impossible for a single party to win power.
Given the M5S’ refusal to partner with others this would shut them out of office unless their support jumps massively from current levels of about 30 percent.
Rome fiddles while the banks burn
As for Italy’s banks, their troubles have been a long-lasting headache.
They mainly stem from exposure to bad loans as a result of irresponsible, if not fraudulent practices, as well as from a jump in household and business insolvency rates caused by a record double-dip recession that wiped out almost a quarter of Italy’s industrial production in the last eight years.
But matters are coming to a head at Monte dei Paschi di Siena (MPS), the world’s oldest lender.
The bank has been in business since 1472, but it spectacularly failed European stress tests in July and needs to raise €5 billion to cover losses from the cut-price sale of €28-billion worth of bad loans, as part of a books clean-up effort.
Recapitalisation plans are being hampered by the political crisis, which has given several foreign investors, including the Qatari sovereign fund, cold feet, shifting the burden of rescuing the bank to the public purse.
The move is political poison, because of the cost and of EU bail-in rules that would force losses on retail bondholders.
In MPS’ case, this could mean wiping out the savings of about 40,000 people, and any political leader with that stain on their hands could forget about re-election chances.
Plans are afoot to either circumnavigate the bail-in rules, or provide compensation to burnt-out retail savers, but a new government will, in either case, need to secure the go-ahead from the European Commission.
The European Central Bank (ECB) is also a party to the crisis: it had imposed an end-of-year deadline for the MPS rescue plan.
On Friday, the ECB's supervisory board refused to extend the deadline to raise new capital for the bank until 20 January.
MPS' shares fell by more than 10 percent on Friday afternoon and rumours grew of a government decree to launch a state aid plan.
As Italy navigates through its morass, it won some breathing space on Thursday, when ECB president Mario Draghi announced an extension of its bond-buying programme through to the end of 2017, shielding weaker eurozone members from speculative attacks on their debt.
But Rome’s luck may be on borrowed time, especially if economic performance remains as poor.
On Wednesday, the Moody’s agency confirmed its rating for Italy but switched the outlook to negative from stable.
It pointed out that “real GDP growth in Italy has, on average, been flat for more than 15 years, and real productivity has barely increased in 20 years.
“Both nominal unit labour costs and Italy's real effective exchange rate show a marked loss of competitiveness.”