Italy President Tests Renzi’s Clout in Government Talks

Italian President Giorgio Napolitano is testing lawmaker support for a new government, the next step in Florence Mayor Matteo Renzi’s quest for an appointment as prime minister.

Napolitano must determine whether the 39-year-old Renzi, who brought down outgoing-Premier Enrico Letta this week, can count on majorities in both houses of the fragmented parliament. To that end, legislative leaders are filing into the Rome offices of the 88-year-old head of state today for a second and final day of closed-door meetings. Napolitano can either appoint a new premier or call snap elections.

“We do not expect new elections to be held immediately,” Astrid Schilo, chief European economist for Exane BNP Paribas in London, said in a research report. “Mr. Renzi will face the difficulty of having to deal with the exact same parliament that his predecessor Mr. Letta did.”

For the third time in just over two years, it is up to Napolitano to impose order amid a government crisis. Renzi, as general secretary of the Democratic Party, commands the biggest contingent of lawmakers. Still, he, like Letta, would have to win the backing of rival parties in order to govern.

Talks Resumed

The president resumed the government-formation consultations at 10 a.m., according to RaiNews24 television. Angelino Alfano, the leader of the second-biggest party in Letta’s coalition government, told the Rome daily newspaper il Messaggero in an interview that “no outcome is taken for granted” and that he sees equal chances for a new government or national elections.

Markets have so far shown little concern for the upheaval. Italy’s 10-year bonds rose, sending the yield down 2 basis points to 3.69 percent after the government’s statistics office announced gross domestic product expanded 0.1 percent in the fourth quarter, the first gain since 2011.

“Renzi promises to speed up the reform process, which is why markets are reacting positively,” Roberto Perli, partner at Cornerstone Macro LP in Washington, said in a research report. “His ability to deliver, though, is questionable at best, given the fractured parliament.”

Senate Numbers

Napolitano will focus on numbers in the Senate, where the Democratic Party holds just 108 of 320 seats. At least three groups representing 125 votes have ruled out backing Renzi. Those are Former Prime Minister Silvio Berlusconi’s Forza Italia, Beppe Grillo’s Five Star Movement and the Northern League, each of which opposed Letta’s government.

Renzi will get 184 votes in the Senate at most, according to Corriere della Sera; the newspaper counted senators formerly led by ex-Premier Mario Monti, an upstart party of former Berlusconi associates and a handful of lawmakers that could break away from Grillo’s group. Napolitano will also have to see whether the full Democratic Party delegation can be counted on to back Renzi.

The Democratic Party, known as the PD, was divided by the downfall of Letta’s 10-month-old government. Loyalty to Letta, a PD member and formerly the party’s deputy chief, may put some of the group’s votes in doubt.

Renzi Priorities

While Renzi has yet to lay out a detailed economic program for the country with Europe’s second-biggest debt, he has proposed reducing taxes on businesses and increasing levies on financial activities. He also said he wanted to extend unemployment benefits and simplify labor laws. The PD favors progressive taxation and has traditionally drawn votes from organized laborand pensioners.

“Deep economic changes still seem unlikely,” Daniele Antonucci, senior European economist for Morgan Stanley & Co. in London, said in a research report. “It will likely take a long time, and ambitious reforms, just to return Italy to its weak growth potential before the crisis.”

Before it's here, it's on the Bloomberg Terminal.