(Bloomberg) -- Prime Minister Giuseppe Conte signaled he won’t leave office without a fight as his deputy, Matteo Salvini, took steps toward bringing the government down and forcing snap elections. Italian bonds plunged on the prospect of political uncertainty and a new vote.
With Salvini, head of the anti-immigrant League, pulling support from the administration and calling for a national ballot, Conte said late Thursday that he won’t let his opponent dictate the pace of events. His comments offered a glimmer of encouragement to those in Rome still hoping for an anti-Salvini coalition that could survive long enough to approve a budget for next year.
Italian 10-year bond yields jumped 25 basis points higher -- the largest sell-off this year. Yields on safe havens, such as German bonds, fell as the cost to buy insurance on Italy’s debt rose.
The benchmark FTSE MIB Index dropped 2.4% in Milan, with banks leading the declines.
The biggest sell-off of Italian bonds this year underscores the concern investors have that the nation’s budget dispute with the euro area could once again bubble to the surface. That could escalate as soon as October when proposed draft budgets for 2020 are due at the European Commission, the European Union’s executive arm. The commission has to give an opinion by November.
A so-called “guarantee” government comprised of non-political figures may be the only solution to resolve the crisis ahead of early elections, possibly in November, Corriere della Sera reported Friday, though the League chief is reportedly pushing for a vote on Oct. 13.
Separately, daily la Repubblica reported that the end of October could be a likely range for elections, adding that Salvini is pressing for parliamentary debate next week, while Five Star prefers after the Aug. 15 national holiday.
Salvini, who is also interior minister, is demanding lawmakers be given a chance to vote out the government as soon as next week as he seeks to capitalize on the relentless advance of his polling numbers over the past year. Salvini says he and his party have grown frustrated by the constant infighting with their coalition allies in the Five Star Movement.
“He wants to go to elections to make the most of his party’s current support,” Conte said Thursday night. Nevertheless, “it’s not up to the interior minister to summon parliament, it’s not up to the interior minister to decide the timing of a political crisis when much more important actors are involved.”
The League formally presented its no-confidence motion against Conte in the Senate on Friday, news agency Ansa reported.
If Conte loses the ballot -- as is likely -- he will hand in his resignation to the president, who has the power to call new elections, but could also try to piece together an alternative governing coalition.
Salvini called for “swift” elections, criticizing his partners in government and saying that the current coalition no longer holds a majority in parliament.
“It’s pointless to go ahead with ‘no’s’ and quarrels like in the past few weeks, Italians need certainties and a government capable of acting,” Salvini said in a statement on Thursday night.
The League and Five Star never had much common ground on policy issues, but the conflict came to a head on Wednesday after a split vote on a high-speed rail link to France. While the project has already been approved, Salvini said the split laid bare the divisions and compounded the “insults” of recent days. Under such conditions, it is “pointless” for the government to continue, he said.
Deputy Prime Minister Luigi Di Maio of Five Star said he is ready for an election but urged lawmakers to first give final approval to a bill that would drastically reduce the numbers of seats in parliament. Luigi Zingaretti, leader of the opposition Democratic Party, said he, too, is ready for a new vote.
Italy’s parliament is currently in recess and it’s not clear when a vote can be held. Highlighting the complexity of the situation, on Monday Italy’s Senate renewed its confidence in Conte’s government when it passed a security law handing Salvini more powers to curb immigration.
“I think Italy will schedule new elections between Oct. 15 and Oct. 30 and that’s good because it will remove all the uncertainty and the tensions of the last months,” Francesco Giavazzi, a professor of Economics at Milan’s Bocconi University, said in a phone interview. The outcome will be pretty clear, he added, as according to all polls “Salvini’s League will get about 40%.”
(Updates with markets, charts)
--With assistance from Chiara Albanese, Daniele Lepido, Dan Liefgreen and John Ainger.
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