Representatives of Italy's two anti-establishment parties, the Five Star Movement and the League, nominated lawyer Giuseppe Conte to be prime minister, during scheduled talks with Italian President Sergio Mattarella, AFP reported May 21.
"I'm very proud of this name because he is the Five Star Movement in a nutshell — he won't burden the Italian public," leader of the Five Star Movement, Luigi Di Maio, wrote on the party's official blog after the meeting. "Conte is an expert in simplification, cutting of red tape and streamlining of the administrative machine, which is what many businesses ask of us." AFP said Conte is a specialist in administrative law.
Last week, the two populist parties agreed on a draft government program, which included basic income for the poor, lower taxes and a call to renegotiate EU fiscal treaties.
Fitch Ratings said the coalition agreement could threaten Italy's sovereign credit profile by loosening fiscal policy and possibly degrading confidence. It also said that the extent to which these risks will weaken credit metrics will depend on the Italian government's ability to implement its program and the resolution of tradeoffs among different groups.
The rating agency cited political risk as a significant factor in its downgrade of Italy to 'BBB' in April 2017 and noted the growing impact of populism and Euroscepticism following Italy's elections this year. The two parties' willingness to resist EU fiscal rules and their stance against the European integration, as indicated by the original agreement, raises the likelihood of an additional increase in public debt and threatens the stability of the economy and financial markets, Fitch said.
Fitch expects Italy's fiscal deficit for the next year to be greater than the 2.0% of GDP it projected in its March sovereign rating review, based on full implementation of the parties' core fiscal commitments. Fitch considers Italy's public debt, which stood at 131.8% of GDP, as a key rating constraint, and expects the extent of additional fiscal loosening to become clearer when a draft 2019 budget is released this autumn.
Italy recently reported that its current account surplus narrowed as the country's goods surplus declined and its services deficit rose on an annual basis.