Draghi's Italian Government Totters 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 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 and 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 national elections as early as September or October.

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

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

Italy's rising borrowing costs have been complicating the European Central Bank's efforts to keep inflation caused by rocketing energy prices under control.

The European Commission is following political events in Italy with a mixture of worry and astonishment, Economy Commissioner Paolo Gentiloni, a former Italian prime minister, said on Thursday, calling for stability and cohesion.

COSTS RISE

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. 5-Star is also pressing Draghi to borrow more to help cushion rising living costs.

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.

The motion should pass even without 5-Star's support.

Draghi, the former head of the European Central Bank, said this week that if 5-Star stopped backing the government it would be up to President Sergio Mattarella to decide what to do.

Critics of the populist 5-Star say its rebellion is tactical, seeking to distance itself from the coalition and rebuild support that has plummeted over the past year when it also lost a chunk of its lawmakers to a breakaway group.

"It's clear and undeniable that early elections at such a delicate moment for Italy will be solely down to the irresponsible attitude of 5-Star," said Silvio Berlusconi, leader of the centre-right Forza Italia coalition party.

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 ask Draghi to stay put, prepare a new programme that could cover the period until year-end and then ask for a new motion of confidence in a few days to gauge his backing," said Wolfango Piccoli of political risk consultancy Teneo.

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