Draghi's Italian Government Could Collapse As 5-Star Rebels

Italian Prime Minister Mario Draghi's coalition government risked collapse on Thursday after the 5-Star Movement, one of its members, said it would not take part in a parliamentary confidence vote.

Other coalition parties have warned that they will quit the government if 5-Star boycotts the vote in the Senate which is due later in the day, while Draghi himself said this week that he would not head an administration without the 5-Star on board.

The 5-Star decision plunges Italy into political uncertainty, risks undermining efforts to secure billions of euros in European Union funds, tackle a damaging drought and reduce its reliance on Russian gas.

It could also lead to early national elections in the autumn.

Italy is due to vote by the first half of next year and tensions have been rising between members of a coalition in place since early 2021 and straddling both sides of the political divide.

The risks of a collapse rippled through financial markets where Italian bond yields rose sharply, indicating investors demanding a higher premium to hold its debt, and shares fell.

5-Star leader Giuseppe Conte announced late on Wednesday that the party would not support the confidence motion, saying the government should be doing more to tackle growing social problems in the euro zone's third largest economy.

"I have a strong fear that September will be a time when many families will face the terrible choice of paying their electricity bill or buying food," said former prime minister Conte, referring to a sharp spike in energy costs.

The confidence vote covers a multi-billion euro aid package which also includes a provision allowing the city of Rome to build a giant trash incinerator - a project 5-Star has always opposed.

The decree containing the measures needs to clear both houses by July 16 or it will expire and the confidence vote is a way of speeding up the process.

Draghi confirmed the vote would go ahead after negotiations between parties to find an alternative came to naught.

PRESIDENT COULD STEP IN

Draghi, the former head of the European Central Bank, said on Tuesday that if 5-Star stopped backing the government it would be up to President Sergio Mattarella to decide what to do next but ruled out governing without them.

Critics of 5-Star say its rebellion is tactical, seeking to distance itself from the coalition and rebuild its support that has sunk over the past year.

Two coalition parties, the rightist League and centre-left Democratic Party (PD), said on Wednesday that early elections were the most likely outcome if the government imploded.

Italy has not had an autumn election since World War Two because that is the time when governments traditionally draw up their budgets, which must be approved by the end of the year.

Mattarella could try to persuade Draghi to stay on and put his government to another formal confidence vote in the coming days. He could also seek to appoint a new short-term leader to steer Italy to elections next year.

(Writing by Keith Weir; Editing by Crispian Balmer and Alison Williams)