It's Luigi Di Maio of the Five Star Movement, Not the League's Matteo Salvini, Who is the Real Power

Well, the technocratic government of Carlo Cottarelli, the one president Sergio Mattarella blessed after tomahawking the M5S-League combine, is being hastily and quietly dismissed. The negative reaction of the divine market quickly made it apparent to Mattarella that he had blundered enormously. Cottarelli would not survive a confidence vote, and it would be back to the campaign hustings as early as July. Matteo Salvini of the League and Luigi Di Maio of the Five Star Movement (M5S) would pad their parliamentary majority.

So Salvini and Di Maio are back to negotiating with Mattarella. The deal, depending on where you read about it, involves getting rid of Paolo Savona as minister of the economy. The Guardian reports that

The leader of the Italian far-right party the League, Matteo Salvini, has cancelled political rallies to return to Rome, in what was seen as a sign that a political impasse that has left the country without a fully functioning government for months may soon be coming to an end.

Salvini was heading back to the capital to meet his coalition partner, Luigi Di Maio, the head of the anti-establishment Five Star Movement, after the Italian president, Sergio Mattarella, gave the pair more time to form a government.

Italian press reports indicated that any agreement to form a new populist government involving the League, formerly known as the Northern League, and M5S would include the nomination – again – of Giuseppe Conte, a formerly obscure law professor, to serve as prime minister.

But Di Maio and Salvini are expected to back down on their earlier insistence that Paolo Savona, a Eurosceptic who has called Italy’s adoption of the euro a “historic mistake”, should serve as finance minister.

The odious Jason Horowitz, writing for The New York Times, sees another element to the bargain. Not only is Savona out, but so too is Conte:

But simultaneous negotiations with the Five Star Movement seemed to center on a top official in his party, Giancarlo Giorgetti, taking the position of prime minister. Some analysts speculated that Mr. Salvini coveted the position himself, and that he had the leverage of Mr. Savona, and his own popularity, to force the Five Star leadership to accept.

The Five Star Movement, reluctant to give up its primacy in the alliance, after winning nearly a third of the Italian vote, is resisting, according to reports in the Italian press. And Mr. Mattarella, who is very much an audience of one for all of the political performances, would also have to sign off.

It appears that Di Maio has the upper hand here. While Salvini has been strutting and preening, Di Maio has been trying to salvage the nascent M5S-League government. His reasonableness is conveyed by the Guardian quote,

Di Maio said that if a deal could not be reached, he favoured snap elections. “There are two paths ahead. Either we launch the Conte government with a reasonable solution or we vote right away,” he said.

For all the talk that Salvini is surging, I would not rule out M5S as the party on the rise. Di Maio has displayed his prowess.

Why Italy is Important: The Neoliberal Center No Longer Believes Its Own Prescriptions

Isn't the irony rich that markets are responding so negatively to the diktats of their champions? The M5S-League government was aborted in deference to the wisdom of the markets, and the markets have deemed this an unwise decision. As Yves Smith says this morning in "NIRP’s Revenge: Italian Bonds Plunge, Worst Day in Decades":

Yves here. While Mr. Market got in quite a tizzy today over 5 Star and Lega’s abandonment of their effort to form a coalition government after the President Sergio Mattarella nixed their choice of economy minister, Paolo Savona. This has produced a first-class political crisis. The technocrats, in trying to appease Mr. Market, has done the reverse.

The Times editorial board spins this obvious blunder -- this is the preferred argument du jour for neoliberals -- as a necessary move to allow Italian voters to come to their senses:

However spooked the markets were, they had been equally wary of the coalition and its grandiose spending plans, and given the mutual hostility of the coalition partners, their government might not have survived for long. Mr. Mattarella’s stand, at least, gives Italian voters a second chance to weigh their options after glimpsing what their earlier choices might mean. That’s something some Brexit voters in Britain, or Trump voters in the United States, might have welcomed.

Such an argument doesn't appeal to Italians though, as Steven Erlanger notes in his lengthy write-up, "Italy Pushes Euro to Fore, the Last Place Europe Wants It":

On Tuesday, the European Commissioner for the budget, Günther H. Oettinger, a German, told the broadcaster Deutsche Welle that the markets and a “darkened outlook” would teach the Italians to vote for the right thing. 

They may yet do so, but it’s impolitic to say so, especially for a Brussels-based German.

One of the first to point out the offense was Mr. Di Maio himself, who in his own message on Twitter called the remark “absurd.”

“These people treat Italy like a summer colony where they come to vacation,” Mr. Di Maio wrote. “But in a few months a government of change will be born and Europe will finally respect us.”

Di Maio is right; hence, the market reaction.

This marks an important turning. The neoliberal center no longer believes in its own prescriptions.