MNI: Italy Political Stalemate Deepens, Risks From Early Vote

By Silvia Marchetti

     ROME (MNI) - Italy's political crisis deepened Monday after parties failed

to strike a ruling deal, but an early election holds more than an element of

risk. Head of State, President Sergio Mattarella, had urged parties to build a

governing agreement by selecting 'neutral' figures, or Italy could be called to

the ballot boxes as early as July with unknown consequences.

     But following an unsuccessful third round of cross-party talks, Mattarella,

acknowledged that the formation of a 'political government' between the Mar 4

election winners was impossible. He called for a cabinet that could govern until

the next election, which could take place either in July or the autumn,

dependant upon further negotiations.

     "Mattarella once again appealed to parties' sense of responsibility to

secure stability to the country, but if all attempts have so far failed, it is

highly unlikely that a parliament deal could be struck now with external figures

and experts on whom all political forces could converge," said Andrea Ungari,

professor of political parties history at Rome's LUISS University.

     --TECHNOCRAT GOVERNMENT

     Democrat officials close to former prime minister Matteo Renzi argued that

the most "appropriate" scenario would be to create a "president's government

made of independent officials with no specific party affiliation".

     It would be very similar to the technocrat government put in place by Mario

Monti back in 2011 when Italy teetered on the brink a sovereign debt crisis.

     There are two crucial reasons why Italy can't afford to vote again in the

short run, explained one of Renzi's top aides. "We need a majority to fix the

existing electoral law which has created this chaos, while the next 2019 budget

plan needs be approved by October and forwarded to Bruxelles for the green

light."

     The new budget must contain future fiscal targets, but above all sufficient

resources to avoid an automatic VAT spike, which would stifle both growth and

consumption rates.

     "That's why it is also very likely that the next vote could be extended to

the beginning of next year, in order to solve all pending issues and meet

commitments," said the source.

     A new budget law usually clears Italy's parliament by early to

mid-December.

     The two leading post-vote forces -- the centre-right coalition led by Lega

party and the 5 Star Movement -- have failed to reach any coalition agreement,

while the Democrats, now in opposition, refuse to join forces with 5 Star.

     In what is one of the worst political crisis Italy has so far faced, even

in its long history of unstable governments, all parties have stuck firmly to

their battle-line positions, unwilling to take a step backwards for the sake of

the country.

     --JULY VOTE

     Sources close to Lega and 5SM said both were pushing for an early second

vote, perhaps as soon as July, confident each could further boost their support.

     The outgoing Democrat cabinet of premier Paolo Gentiloni can't prolong its

mandate, however, given their electoral defeat.

     The political stalemate however might not spook markets too much, according

to Filippo Taddei, professor of international economics at Bologna's John

Hopkins School of Advanced International Studies (SAIS).

     "Economic fundamentals are solid and outweigh critical political factors.

Milan's stock exchange is responding well to the situation and the spread in

yields is staying low. In the short run, there are no major inbuilt instability

risks linked to a potential government void but of course, no country can go on

for an extended period of time without a governing majority," said Taddei.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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