Italy's political crisis edged closer to a resolution Aug. 28 as the anti-establishment Five Star Movement reached a deal with the opposition Democratic Party to form an alternative coalition government, averting the risk of snap elections for now.
After days of negotiations, Five Star Movement leader Luigi Di Maio told Italian President Sergio Mattarella that a deal has been struck, with the Democratic Party also agreeing to bring back Giuseppe Conte as prime minister, newswires Reuters and Ansa reported.
The Five Star Movement's governing coalition with the League Party collapsed earlier in August due to policy differences, forcing Conte to step down.
Conte is expected to receive a new mandate from Mattarella late Aug. 28, according to Italian news wire Ansa. The Italian president has the power to dissolve parliament and call new elections.
A ruling coalition between Five Star and the Democrats would be welcomed by investors, as suggested by a rally in Italian government bonds, due to the Democratic Party's "more moderate policies and pro-EU stance," according to a note from Capital Economics.
The forming of a new coalition government would also lessen concerns over the country's budget for 2020, Capital Economics added. In the previous governing coalition, League leader Matteo Salvini threatened to break the European Union's fiscal rules.
Despite the coalition deal, the risk of early elections in the coming months remains due to the possibility that the incoming government might not last until the next general election in 2023, given that the Five Star Movement and the Democratic Party are longtime rivals, Capital Economics also said.
