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Italy's Gentiloni to form new government

December 11, 2016

Italy's President Sergio Mattarella has asked Paolo Gentiloni to form a new government as prime minister. Mattarella has rejected calls for immediate elections.

Paolo Gentiloni Außenminister Italien
Image: picture-alliance/AP Photo/B. Ozbilici

Paolo Gentiloni, Italy's outgoing foreign minister, was summoned to the Palazzo del Quirinale, an official residence of President Mattarella in Rome, just after midday on Sunday.

Gentiloni made a short statement after the meeting saying he had accepted the assignment as a "high honor" and would carry out the role with "dignity" and "responsibility," preparing the way for a new electoral law. 

President Mattarella said on Saturday he would act quickly to give the country a fully functioning government after holding 23 separate meetings with leaders of all parties over the past three days following the resignation of the previous caretaker prime minister, Matteo Renzi, who was defeated in a referendum on constitutional reforms last Sunday.

Renzi had said he would resign unless there was a "Yes" vote backing the reforms. In the event, there was a resounding 59-41 percent rejection of proposed changes.

All major parties have called for elections as soon as possible. But Italy needs a new electoral law to replace one that applies only to the lower house and could be declared illegitimate in January by the Constitutional Court.

The legislature is due to carry on until February 2018, but early elections could be called at any time after parliament rewrites the electoral law.

Gentiloni as close Renzi ally

Gentiloni is a 62-year-old former journalist and member of the Democratic Party (PD) which Renzi still leads. The new prime minister was one of the most trusted ministers and his appointment should allow Renzi to retain some influence on public affairs ahead of a possible candidacy in the 2018 elections.

Gentiloni was called up from the back benches by Renzi and appointed foreign minister in October 2014 when the former incumbent Federica Mogherini went to Brussels to take over the top diplomatic post for the European Union as High Representative of the European Union for Foreign Affairs and Security Policy and Vice-President of the European Commission. Previously, Gentiloni had served as communications minister for two years under the Romano Prodi government in the mid-2000s.

The new prime minister has to begin consultations with political forces to form a government and report back regularly to Mattarella on his progress.

Opposition parties were anticipating that the required vote of confidence in a Gentiloni administration would be held on Wednesday. The populist Five Star Movement (M5S) which has led the calls for immediate elections, said it would boycott the vote because the new government would have no legitimacy. A survey published by "Corriere della Sera" said new elections would be won by the M5S which was started by Beppe Grillo, a popular comedian and blogger.

The aim is to have a government in place by Thursday, allowing Gentiloni to represent Italy at a European Union summit that day in Brussels.

Italy has had 63 governments in the past 70 years.

Earthquakes and banking

The challenges for the new prime minister are not just political. 

Italien Erdbeben
Earthquake damage in Amatrice in OctoberImage: picture-alliance/AP Photo/M. Percossi

The quakes in August caused nearly 300 deaths and damaged homes and businesses across a wide area of Umbria. In October, further quakes in central Italy caused damage estimated to be in the tens of millions of euros, affecting many areas already damaged in August.

Earthquake insurance penetration is low in Italy, hence low loss estimates from the quakes.

The country's heavily indebted banking sector is also in need of substantial funds to recapitalize.

The third-largest lender and the oldest surviving bank in the world, Monte dei Paschi di Siena (BMPS,) may need state intervention to avoid collapse. The bank has been in business since 1472, but it failed European stress tests in July and needs to raise 5 billion euros ($5.2 billion) to cover losses from the cut-price sale of 28-billion euros worth of bad loans, as part of its efforts to restructure.

The European Central Bank (ECB) refused on Friday to allow more time for a private bailout meaning a state-funded salvage operation was more likely.

Under EU rules, state funds can be injected into troubled banks only if private creditors accept losses. In the case of BMPS this could hit many small investors who hold the bank's junior bonds.

jm/jlw (Reuters, AFP)