- - Wednesday, May 16, 2018

ROME — The populist wave that has washed over both sides of the Atlantic may be about to swamp one of the European Union’s founding powers.

After months of drift and political uncertainty, Italy looks set to anoint its first government dominated by populist and anti-immigrant parties, setting Rome on a collision course with the EU powers that be in Brussels over plans to cut taxes, increase spending, reconsider the euro currency and dramatically curb the flow of refugees arriving on the country’s shores from northern Africa.

Populist and anti-immigrant parties have led EU governments in Eastern Europe and even in neighboring Austria, but Italy — with the 28-nation EU bloc’s fourth-largest economy and population — would pose a political challenge of another magnitude to the alliance’s liberal order.

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Negotiations to form a new government have heated up in recent days after an inconclusive March 4 general election. The top two finishers — the upstart anti-establishment 5-Star Movement and the nationalist League party — have been inching this week toward an alliance that would have a razor-thin majority in Italy’s parliament.

Party leaders Luigi Di Maio of the 5-Star Movement and Matteo Salvini of the League were expected to present their governing plan to Italian President Sergio Mattarella on Monday but asked for a delay. Mr. Mattarella granted them a few more days to try to hash out their differences.

With the bond markets rattled and much of Europe watching anxiously, the two principals sounded increasingly defiant as they insisted Wednesday that a coalition deal was close. “It would be crazy to give up at the moment of truth,” Mr. Salvini told followers in a Facebook post. “The more they insult us, the more they threaten us, the more they blackmail us, the more desire I have to embark on this challenge.”

Mr. Di Maio said he understood that an alliance of the 5-Star Movement and the League may “scare a part of the European establishment.”

“There will be utmost dialogue with Europe, but we will not be subordinate to Eurocrats,” he said.

The 5-Star Movement, founded less than a decade ago by an Italian comedian as an experiment in direct democracy in defiance of Italy’s traditional parties, says any coalition deal must pass muster with its supporters.

Any deal “will be put to our members through a vote online,” Mr. Di Maio told reporters Monday.

Among the key disputes still in question are specifics of what could be a $120 billion spending spree, including proposals for a flat income tax, an automatic basic income for all Italians and more generous pensions. The League is also pushing an ambitious overhaul of the justice system.

Those policies would easily push Italy to the wrong side of European Union limits on government budget deficits. EU officials also are nervously following developments of a proposed Italian referendum on the future of the euro currency and policies aimed at turning away refugees from Africa and the Middle East.

As the likelihood of a populist government in Italy increases, the yield on Italian government bonds — a measure of investor confidence in the country — has climbed. The rate on 10-year bonds traded above the 2 percent threshold Tuesday for the first time in more than a year. Meanwhile, the euro has steadily lost value against the dollar and other major currencies, approaching its lowest levels since December.

“It’s very possible that the parties will have to moderate their plans on a lot of these controversial areas once they try to govern,” said Flavio Chiapponi, a political scientist at the University of Pavia and author of a book about the 5-Star Movement. “But during the campaign, neither party was shy about criticizing the European Union, and their supporters do not expect them to back down. Nobody knows exactly how it will all play out.”

Playing to the base

The political base of the League — long known as the Northern League — is centered in the country’s more prosperous north. It favors lower taxes and reining in central government spending, much of which party leaders say is redistributed to — and wasted by — the poorer south.

The 5-Star Movement has a much greater appeal in the south, where the youth unemployment rate runs higher than 50 percent in many areas. Among Mr. Di Maio’s campaign planks was a pledge to guarantee a minimum income to the unemployed.

While both parties and party leaders revel in challenging the conventional wisdom of the EU, it hasn’t made them natural partners on Italy’s deeply fragmented political landscape.

Nicola Pasini, a political scientist with the State University of Milan, said the parties are not a natural fit. Though both draw support from young voters and those who oppose traditional political powers, their policies on fiscal matters and on the environment are often at odds.

Ms. Pasini said the two parties — neither of which has led a national government — will have to switch gears from campaigning to governing.

This would be the first time the 5-Star Movement has had a government role higher than the municipal level. The League has been only a junior partner in governments led by billionaire tycoon Silvio Berlusconi, whose hopes to play kingmaker were dashed when his center-right Forza Italia party finished behind the League in March. Both leaders are young: Mr. Di Maio is 31, and Mr. Salvini is 45.

“Both parties campaigned by attacking the political elite,” Ms. Pasini said. “Now they are on the verge of creating a government and becoming the political elite.”

Mr. Chiapponi said that would probably result in instability.

“I think we will have a power play between these two parties, and as soon as one of them thinks his party will be better off with new elections, he could pull his support and the government would collapse,” Mr. Chiapponi said.

Mr. Berlusconi, 81, the colorful and polarizing four-time prime minister who resigned from his last government in disgrace in 2011, has been an unexpected wild card in the process.

Mr. Berlusconi had been prohibited from holding public office because of a major tax fraud conviction, but a tribunal lifted the ban over the weekend.

Analysts agree it is unlikely that Mr. Berlusconi would have a formal role in the next government, especially since Mr. Di Maio agreed to negotiate with Mr. Salvini only on the condition that he drop Mr. Berlusconi as a coalition partner. But Giovanni Orsina, a historian at Rome’s Luiss University and the author of a book about Mr. Berlusconi, said he could push for some policies behind the scenes.

“If Berlusconi believes he is strong, do not be surprised if he tries to act on that belief,” Mr. Orsina said. “He can still make his voice heard.”

With Italians increasingly restive over the failure to form a new government in Rome, the parties angling for power do not have the luxury of time.

Mr. Mattarella said this month that if political leaders can’t form a coalition, he will appoint a nonpartisan figure to lead a caretaker government and hold new elections by the end of the year.

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