May 24, 2018 / 11:15 AM / a month ago

Italy parties push president to name eurosceptic economy minister

ROME (Reuters) - Italy’s coalition parties are pushing a reluctant head of state to name an 81-year-old eurosceptic economist as economy minister, creating the first big headache for Prime Minister-designate Giuseppe Conte.

Newly appointed Italy Prime Minister Giuseppe Conte speaks to the media after the consultation with the Italian President Sergio Mattarella at the Quirinal Palace in Rome, Italy, May 23, 2018. REUTERS/Remo Casilli

The leader of the far-right League, Matteo Salvini, said on Thursday he had “no doubts” that Paolo Savona, a former banker and industry minister who has called Italy’s entry in the euro zone a “historic error”, was the right man for the job.

President Sergio Mattarella, who stresses that Italy must meet its European commitments, has let it be known through his aides that he does not want Savona, setting up a potential clash even before the radical government gets off the ground.

Markets continued to sell off Italian assets on the prospect of a an inexperienced, eurosceptic government of the euro zone’s third largest economy. However, there was little sign of wider contagion and Italian bond yields remain far below the levels reached during the euro zone debt crisis in 2011 and 2012.

Conte, a law professor without political experience, is meeting all the groups in parliament to discuss his plans, and is unlikely to give the head of state his list of ministers before Friday evening, the 5-Star Movement said.

Plucked from obscurity by the anti-establishment party to head its coalition with the League, Conte was given the mandate to form a government by Mattarella on Wednesday.

Salvini is expected to take over the interior ministry to pursue his promised crackdown on illegal immigration, while 5-Star chief Luigi Di Maio wants the labour ministry to enact his pledge to improve welfare for the poor.

Like the prime minister, neither Salvini nor Di Maio have any experience of government.

However, the economy ministry is proving most problematic. Savona has decades of experience in academia, banking and government but has spooked markets with his eurosceptic views that chime with those of the League.

In his latest book he calls for a “plan B” to be drawn up to allow Italy to leave the euro zone with as little damage as possible should this prove necessary.

Salvini said on Facebook he wanted Savona in government “to go to Europe, Brussels, Berlin and Paris to re-negotiate norms, constraints, rules for the good of Europe’s citizens”.

Di Maio endorsed the choice, saying he and Salvini were seeking “the best people to bring change to this country, and Savona is certainly among these.”

5-Star and the League say Italy needs to spend more to help its sluggish economy. This alarms Brussels, which points to Italy’s huge public debt of more than 130 percent of gross domestic product, the highest in the euro zone after Greece’s.

There is a long history of the EU turning a blind eye to countries flouting its fiscal rules, however. France’s budget deficit is much higher than Italy’s and exceeded the 3 percent of GDP limit for nine straight years until 2017.

FILE PHOTO: Italian Prime Minister-designate Giuseppe Conte arrives to speaks with media at the Quirinal Palace in Rome, May 23, 2018. REUTERS/Alessandro Bianchi/File Photo

PRESIDENT’S DILEMMA

Mattarella has the final say on appointing ministers, but he is known for his non-confrontational style and he will be in a difficult position if the two coalition parties insist Savona is the right person to carry out their economic agenda.

The nascent government has the backing of most Italians, with an opinion poll by the Demopolis agency on Wednesday showing 61 percent were in favour and 39 percent against.

Savona’s appointment would probably alarm EU heavyweight Germany, in particular. He warns in his book that the Germans are now trying to dominate Europe economically, having failed to achieve the goal militarily in World War Two.

“Savona’s positions are radically and suicidally anti-German,” former Italian economy minister Vincenzo Visco said in an interview in the daily Corriere della Sera on Thursday.

Italy’s partners continued to express concern about Italy.

Slovak Finance Minister Peter Kazimir said the coalition would be on a “suicide mission” if it fulfilled its promises of higher spending and tax cuts. His Maltese counterpart warned Italy could become “a replay of Greece.”

Italian markets, which sold off this week as the 5-Star/League coalition took shape, recovered early on Thursday but then resumed losses after Salvini’s comments on Savona.

Italy’s main share index was down 1.1 percent and the gap between the yield on Italy’s benchmark bonds and safer German paper widened to 193 basis points from 190 on Wednesday. That compares with a spread of more than 550 points in November 2011.

Additional reporting by Steve Scherer and Masimiliano Di Giorgio; Editing by Mark Heinrich

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