Italy’s stock market jumped two per cent this morning and bond yields hit record lows as Prime Minister Guiseppe Conte took a big step towards forming a new government.
Conte said he had accepted President Sergio Mattarella’s invitation to form a new coalition government comprised of the anti-establishment Five Star Movement and centre-left Democratic Party (PD).
The development looks set to put an end to the political chaos that has reigned since the coalition between Five Star and the right-wing League party broke up earlier this month.
The Five Star and PD are old enemies, but have united to prevent elections that would likely see the leader of the right-wing League party Matteo Salvini become PM.
Conte resigned last week with a blistering attack on Salvini, impugning his behaviour and respect for democratic norms during his time as a deputy prime minister in the coalition.
Yet today he announced that he would seek to continue to lead the country. “In the coming days I will return to the president of the republic … and submit my proposals for ministers,” he said.
The country’s FTSE Mib stock index was 1.95 per cent higher by the early afternoon, while the yield on Italy’s 10-year government bond dropped to a record low of 0.93 per cent before rising slightly.
Investors reacted well to the news that there will be no general election in the near future and that serious steps were being made to keep Salvini from power.
Salvini has repeatedly called for Italy to cut taxes and increase public spending to stimulate growth. Should he become PM, he would likely clash with the European Union over Italy’s mountain of public debt.
Barclays senior European economist Fabio Fois said: “Political instability is set to decline as the government crisis triggered by the League is close to an end.”
“In the near term, we think market sentiment will remain constructive on Italy. We expect the likely-to-be appointed grand coalition will adopt a cooperative stance with European authorities on the budget.”