Italy's 5-Star, opposition at loggerheads over roles in putative new cabinet

Talks on forming a new Italian government ran into trouble on Tuesday as the ruling 5-Star Movement and the opposition Democratic Party (PD) traded accusations over key jobs, including that of interior minister. The anti-establishment 5-Star suspended negotiations with the center-left PD until it clearly committed to the return of outgoing Prime Minister Giuseppe Conte as PM.

The PD meanwhile accused 5-Star of undermining the formation of a new cabinet by demanding the interior ministry for its leader, Luigi Di Maio. "The government agreement is at risk of failure due to the personal ambitions of Luigi Di Maio, who wants to be the minister of the interior and the deputy prime minister," a PD spokesman said.

"Di Maio pays attention to nobody and proceeds through ultimatums," he added. In response, 5-Star said Di Maio - a deputy prime minister in the outgoing administration who also served as industry and labor minister - had never demanded the interior ministry.

The row echoed the in-fighting that preceded the collapse of 5-Star's 14-month-old coalition with the right-wing League earlier in August. It remains to be seen if the exchanges are merely tactics to secure the upper hand in negotiations over cabinet jobs, or whether they have the potential to scupper a deal between the two parties which have always been bitter adversaries.

Financial markets took Tuesday's very public row in their stride, seemingly upbeat that snap elections could be avoided, and rallied later in the day after the PD's Senate leader, Andrea Marcucci, said the talks with 5-Star had resumed and that progress was being made. Italian banking stocks outperformed their European peers and the spread between Italy's 10-year bond yields and German Bunds fell below 184 basis points, the lowest since May 2018.

Investors have been concerned an election win by Matteo Salvini's League would put Italy on a collision course with the European Union over expansionary government spending.

INTERNAL DIVISIONS

Zingaretti was meeting with the PD's top brass on Tuesday afternoon. 5-Star's lower house leader Francesco D'Uva played down the friction, telling reporters in parliament that contacts between the two parties were still ongoing.

Piero Fassino, a former PD leader, said before the party meeting that there was no veto against Conte, but his appointment must be based on a broader accord over policies, which was not yet secured. The situation is complicated by deep internal divisions in both parties, each one split between leadership factions that want a deal and others that would prefer to risk an election.

Di Maio will meet with all the 5-Star lawmakers at 17:00 GMT The great majority is in favor of an accord with the PD rather than a snap election, which would probably see many of them lose their seats less than 18 months into this parliament. Late on Monday, PD and-5-Star seemed well on track towards a coalition deal.

The PD indicated in various comments that it had dropped a veto on Conte serving another term as prime minister, removing an early obstacle to an accord, though it never said explicitly that it would back Conte's return. Conte, who belongs to no party but is close to 5-Star, resigned last week after Salvini declared the ruling coalition dead, seeking to capitalize on his surging popularity by triggering new elections that could return him as premier.

The PD and 5-Star are due to report back to President Sergio Mattarella on Wednesday and if no deal is sealed by then, he will name a caretaker government and call early elections. Opinion polls suggest the League has lost 3-7 percentage points since collapsing the government, though it remains easily the most popular party, followed by the PD and 5-Star. 

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