(Bloomberg) -- Italy’s center-left Democrats and anti-establishment Five Star Movement signaled progress in talks aimed at forming a coalition and putting an end to the political crisis that has left the country without a government since earlier this week.
President Sergio Mattarella, who holds the power to either appoint the next prime minister or call elections, gave them until Aug. 27 to put together a new parliamentary majority. Lawmakers from the two groups said the meeting in Rome on Friday was constructive and that no real hurdles stood in their way.
It was held “in a positive and constructive climate that makes us hopeful for the prospects” of a good outcome, the Democratic leader in the senate, Andrea Marcucci, said after the discussion. Francesco D’Uva, the head of Five Star in the lower house, agreed, adding that his group wasn’t conducting talks with other parties. The heads of the two groups haven’t met yet.
Giuseppe Conte resigned as prime minister this week after Matteo Salvini, head of the anti-immigrant League party, withdrew support for the government in a bid to consolidate power. With the League riding high in the polls, Salvini was attempting to force new elections that could hand him the premiership. Italy has averaged about one government a year since World War II.
Salvini’s power grab appears to have fizzled out for the time being, given the momentum in his rivals’ coalition talks. The League leader’s gambit appears even to have hurt his standing among voters. The latest Tecne poll for Mediaset published Thursday showed League support dropping to 31.3%, from 38% earlier this month, while both Five Star and the PD gained.
Failure to form a stable new administration would add to Italy’s economic difficulties, with a new budget due this fall and inaction risking an automatic sales tax increase worth 23 billion euros ($26 billion).
“The crisis should be resolved quickly,” Mattarella said in Rome on Thursday after meeting with the major political groups. “It’s required by the political and economic uncertainties.”
Italian bonds opened higher on Friday but later slipped back. The 10-year yield climbed to 1.36%, widening the spread to Germany by two basis points.
While a coalition between the PD and Five Star would deny Salvini his chance to become premier, at least in the short term, it would be an unlikely alliance between two parties that have little in common.
Five Star’s strong performance in last year’s election came after it relentlessly attacked the ruling Democrats, saying they represent a corrupt establishment that has little interest in doing what’s best for Italy.
If they bury the hatchet and strike a deal, the two parties could cobble together a healthy majority in the Senate of about 180 seats, including some independents, compared with the previous ruling coalition’s 165.
PD leader Nicola Zingaretti has said he is against Conte, an independent, returning at the head of a new government and other names are circulating in the Italian media as possible prime ministers. Foremost among them is Enrico Giovannini, a former labor minister and statistics office chief, Italian newspapers reported Friday.
There is also wide backing for the idea of a female candidate, reports said, with Marta Cartabia, vice president of Italy’s constitutional court, former justice minister Paola Severino and Elisabetta Belloni, secretary general in the foreign ministry, apparently in the running.
Over Wednesday and Thursday, Mattarella held talks with all the country’s main political leaders in a bid to give the country a stable political future before budget deadlines in the fall.
“The only possible options are governments that get full support of the parliament,” Mattarella said. Without that, “the only alternative is new elections.”
Despite years of rancor, a link-up between the Democrats and Five Star is seen as the only viable alternative.
Zingaretti told Mattarella Thursday that he’s available to form a new government, but said he won’t do so “at any cost.” Hours later, Five Star leader Luigi Di Maio confirmed that his party had started talks to form a new majority with the Democrats.
Di Maio suggested that a deal will only be possible if the PD backs a constitutional reform that would cut the number of lawmakers in parliament.
“Then it would be clear whether there is a genuine desire to change things,” he said in an interview with Corriere della Sera newspaper published Friday.
The most pressing item for any new government will be to pass a 2020 budget by Oct. 15 and have it approved by parliament by Dec. 31.
In June, Italy avoided censure from the European Union over its fiscal situation, but any budget plan could prove controversial unless the new administration does enough to rein in a debt load of about 130% of economic output.
(Updates with meeting starting in first paragraph.)
--With assistance from Richard Bravo and Lorenzo Totaro.
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