(Bloomberg) — Italian Prime Minister Mario Draghi is expected to offer his resignation after the Five Star Movement, a key member of his coalition, went ahead with its threat to boycott a confidence vote on the government, triggering political turmoil.
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The party led by former premier Giuseppe Conte, the second-biggest group in parliament, announced in the Rome Senate that it would stay away later Thursday from the vote on an aid package for businesses and households hit by high energy prices.
Draghi, who was appointed by President Sergio Mattarella to lead a technocratic government in early 2021, is expected to offer his resignation to the head of state at the Quirinale Palace after chairing a cabinet meeting in the afternoon.
It is unclear whether Mattarella will accept the 74-year-old Draghi’s resignation. Mattarella could ask the former head of the European Central Bank to seek support from all allies in a new vote, after a round of talks. A collapse of the coalition could prompt an early election, possibly in the fall, but most parties would seek to avoid this.
“There has been complete indifference toward our requests,” Five Star’s Maria Domenica Castellone told fellow-senators as she confirmed the boycott. “For some political forces, the only aim during these 18 months has been to dismantle our work.”
Investors dumped Italian assets, spooked by the risk of a government collapse and complications for ECB efforts to support the market. Italy’s stocks and bank debt led regional losses, and the euro fell against the dollar. The spread between the yield on Italy’s 10-year government bonds and their German peers — a gauge of risk — edged up to a one-month high, above 215 basis points, up 16 basis points on the day at 2:36 p.m.
The turmoil comes as Europe grapples with an energy crunch caused by Russia curtailing gas exports amid its war in Ukraine, stoking fears of a recession. The European Union, whose industries are heavily dependent on Russia gas, cut its growth forecast for 2023 in new projections published earlier Thursday.
Draghi’s exit could throw in doubt Italy’s reforms needed to benefit from EU recovery funding, the administration’s strong pro-European stance and its staunch backing for military shipments to Ukraine.
Red tape would slow any path to an early election. At least 45 days have to pass between Mattarella dissolving parliament and an election, and Draghi could stay on as a caretaker premier. Italy has never held a vote in the summer.
Five Star has said the aid package debated in the Senate didn’t go far enough. The party is struggling to curb a slide in opinion polls.
“The renewed political uncertainty is leading a sell-off of Italian stocks and bonds,” said Nadia Blasone, a portfolio manager at Alicanto Capital SGR. “If Draghi’s government collapses sovereign spreads will quickly increase well above 200 basis points, and higher country risk will negatively impact domestic companies and banks.”
Matteo Salvini, leader of the League which is the biggest party in the coalition, has called for a snap vote. All the other parties in Draghi’s alliance, including the center-left Democratic Party, want Draghi to verify support for the coalition.
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