Italy’s Embattled Conte Doubles Down on Bid for More Crisis Debt

(Bloomberg) -- Italy’s embattled government is pushing for an even bigger-than-expected deficit expansion just as the euro-zone’s third-biggest economy reels from a resurgent coronavirus outbreak and a deepening political crisis.

The bid by Prime Minister Giuseppe Conte’s team for a 30 billion-euro ($36 billion) increase in debt, as cited by people familiar with the matter, is more than a fifth larger than the amount Finance Minister Roberto Gualtieri touted in an interview last weekend.

That expanded funding need raises the stakes for the government as it fends off a dramatic political crisis sparked by former premier Matteo Renzi’s withdrawal of his party from the cabinet. The move robbed Conte of a working majority, leaving his administration teetering in limbo that could last days or weeks.

“Opening a government crisis in the middle of the pandemic, when we need to pass difficult measures, in order to contain the contagion and to support the economy, has been an irresponsible act,” Gualtieri told Rai 1 television on Thursday.

The question of how Italy should disburse its own money and European Union aid has been a key element in the argument between Conte and Renzi, who criticized the premier’s handling of an unprecedented spending opportunity for the country and sought to divert more cash to health spending. He also wanted Italy to use cheap funding from the European Stability Mechanism, a move resisted by Conte.

The turmoil comes at a fraught moment for Italy, whose economy is crippled by lockdowns to control the pandemic, just as the country garners extra attention with its turn at the leadership of the Group of 20 nations.

Conte’s cabinet meets on Thursday evening to sign off on the new funding request, which must be then approved by parliament.

The money will be used to compensate businesses hit by coronavirus restrictions as well as to extend furlough payments for workers, one of the people said. A spokesman for the finance ministry declined to comment.

This is the fifth time the government has sought to expand its borrowing limits since Italy suffered its first national lockdown last March, and the extra amount suggests a desire to front load its bid for more debt space early in the year. The additional spending is on top of the current projection of a deficit equal to 7% of GDP in 2021.

Uphill Struggle

Getting backing for the debt expansion would be just the first step in Conte’s uphill struggle to shore up his precarious political position. Italian bonds fell on Thursday after a report by the ANSA newswire that the Democratic Party in the ruling coalition sees a risk of fresh elections in June.

Ten-year yields were up four basis points at 0.64% and their spread over Germany, a barometer of risk, rose the most since October to 119 basis points.

Before that outcome, Conte might yet seek to win a confidence vote, in a move that could require him to rely on forces possibly including some members of Silvio Berlusconi’s Forza Italia party. The premier has agreed with President Sergio Mattarella to avoid such a ballot until new relief and deficit legislation is passed, la Repubblica reported.

Other possible outcomes could include the establishment of a caretaker administration, or for a broad alliance including coalition parties and possibly center-right forces to form a government under a figure such as ex-European Central Bank President Mario Draghi.

“A snap vote, the worst scenario for investors, remains unlikely at this stage,” said Lorenzo Pregliasco, a political analyst at YouTrend.