Italian prime minister resigns, bringing Rome closer to a snap election

Italian Prime Minister Giuseppe Conte announced his intention to resign on Tuesday, as a political crisis rumbles on in Rome that could eventually lead to new elections.

Conte has been under pressure since one of the country's deputy prime ministers — Matteo Salvini, who leads the right-wing Lega party — called for a snap election earlier this month. Salvini declared the populist coalition government unworkable and called for a no-confidence vote in Conte.

Conte told the Senate that the surprise move for the no-confidence vote against the coalition was forcing him to "interrupt" what he contended was a productive government. He said he would go to the president to formally resign as leader.

He also accused Salvini of showing "grave contempt for Parliament" and putting Italy at risk for a "dizzying spiral of political and financial instability" in the months ahead by creating an unnecessary crisis.

Conte said Salvini had violated the coalition's commitment and he had acted with political opportunism, according to a Reuters translation.

"(Salvini) has shown that he is following his own interests and those of his party," Conte told the packed Senate, according to the news agency. "His decisions pose serious risks for this country."

Salvini, who sat next to Conte, smirked at times as the premier spoke. He began the Senate debate by saying, defiantly, "I'd do it all again."

Conte, a law professor who was appointed by both parties in the government coalition but is not affiliated with either — added that the political crisis probably meant the end of this current government. Italian bond yields slipped on Tuesday as Conte spoke and the Italian banking index was down 2.1% as he announced his intention to resign.

Rocky coalition

Italy — the third largest euro zone economy — has been governed by a two-party coalition since elections in March 2018 yielded no outright winner in Rome. The Lega party favors tax cuts and aims to stop illegal immigration while the Five Star Movement (M5S) promotes initiatives that would extend benefits for citizens.

This coalition has been on a rocky road since it came to power. Some of the tension has been caused by government appointments, the country's relationship with the European Union, and, more recently, a high-speed rail link.

Salvini's Lega is leading current opinion polls with a rating of around 37%. Lega came to power as the junior coalition partner, but Salvini's tough rhetoric has helped to boost the party's popularity in a country where immigration is a key issue. M5S has, meanwhile, seen its support drop and is polling third at 18%.

What next?

The country's future is now in the hands of the Italian president, Sergio Mattarella. He will first receive Conte who will formally resign and then it will be up to him to hold consultations to see whether any parties can form a majority.

If not, he will call a fresh election and decide whether a technocratic and caretaker government should be put in place. Meanwhile, Italy's opposition Democratic Party has reportedly discussed forming a coalition with M5S.

The 2020 budget

The instability has caused uncertainty in a country that has been plagued by political turmoil. The Italian government, just like other euro zone nations, has to put together its spending plans for the new year by mid-October. The prospect of an early election has led investors to contemplate what sort of economic targets Italy will present to officials in Brussels.

The country has one the highest public debt piles globally, above 130% of its debt-to-GDP, and any increase in spending could increase public debt even further — an issue which has strained relationships between Brussels and Rome.

On Tuesday, Conte claimed that Salvini's actions would mean it's unlikely the budget would be passed on time. He also said the country risks financial instability and spoke of a possible VAT increase.

_ The Associated Press and Reuters contributed to this report.

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