Ilya Roubanis @IRoubanis

Italy heads towards elections in August

Flickr/Italy in US/CC BY-ND 2.0
As a director to the IMF’s fiscal affairs department from 2008 to 2013 Carlo Cottarelli became known as “Mr Scissors".

Italy’s caretaker prime minister Carlo Cottarelli will try to put together a cabinet on Tuesday, for a government unlikely to gain a confidence vote.

The 64-year old Cottarelli is a former International Monetary Fund economist. As a director to the IMF’s fiscal affairs department from 2008 to 2013 he became known as “Mr Scissors” for prescribing public spending cuts during the short-lived center-left government led by Enrico Letta.

Cottarelli was given the mandate to form a government until early 2019, which should allow him to pass the next budget. The choice by President Sergio Mattarella was the direct opposite to the MS5/Lega nomination of Paolo Savona, an open critic of the single currency.

Cotarelli is unlikely to secure a confidence vote in parliament, which means the country will go to the polls in August.

Constitutional crisis

Far-right leader Matteo Salvini accused Matarella of representing the interests of states other than Italy while MS5 Luigi Di Maio called for his impeachment.

Di Maio denied that Savona would have taken Italy out of the Euro. He accuses Mattarella – a former constitutional judge —  of overreach and is calling for peaceful protests across Italy on Saturday, when Italy commemorates its transformation into a republic in 1946.

The far-right Brothers of Italy and Silvio Berlusconi’s Forza Italia will also vote against the Cottarelli interim government. Experts suggest that impeachment is only possible if high treason can be established.

Since the March 4 elections in Italy, day-to-day governance is still in the hands of outgoing prime minister Paolo Gentiloni.

Financial crisis

As the constitutional crisis was unfolding on Monday, markets were spooked by the prospect of an electoral encounter that will be seen as a referendum on eurozone membership.

Meanwhile, polls suggest that Lega’s electoral influence has surged to 22%, five points higher than March 4.

Stock trading for Italian banks was suspended on Milan’s bourse; the spread between Italy’s 10-year bonds and the German Bund surged from 204 on Friday to 233 points, that is, its highest since the end of 2013.

Italy is the euro zone’s third-largest economy with the biggest in absolute numbers public debt in Europe; Italy has a 130% debt-to-GDP ratio, second only to Greece.

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