Italy’s Gentiloni Faces Economy, Banks, Populists in Top Job

EghtesadOnline: Paolo Gentiloni has plenty of experience of international diplomacy but his main challenges, if he succeeds in becoming prime minister, will be Italy’s weak economy and -- most urgently of all -- its troubled banks.

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12 December 2016

President Sergio Mattarella asked outgoing Foreign Minister Gentiloni, 62, to form a new government to replace reform-minded Matteo Renzi after the latter was defeated in a constitutional referendum.

According to Bloomberg, the premier-designate could report back to the head of state on progress as soon as Monday. Even before he does so, the anti-establishment Five Star Movement called him an “avatar” of Renzi, because the outgoing premier is his chief sponsor.

Renzi plans to call a Democratic Party congress early next year to confirm him as its leader, before he would stand as a PD candidate in elections he is pushing for in the first half of 2017.

Gentiloni’s in-tray would include Italy’s poor economic growth, and the fragile banking sector -- first and foremost the plight of Banca Monte dei Paschi di Siena SpA. The European Central Bank decided on Friday not to allow the lender to extend a deadline on a 5 billion-euro ($5.3 billion) capital increase, fueling worries that any political instability could weigh especially on the troubled banking sector.

First Impact

“From a market perspective, the first impact of Gentiloni’s appointment could be positive as a solution has been found pretty quickly and is supported by a majority which is more or less the same as before,” said Nicola Trivelli, chief executive officer of asset management company Sella Gestioni Sgr in Milan. “The real issue is that this government will be one of pure transition towards early elections.”

Pressed for time, Gentiloni is aiming to take part in a European Union summit in Brussels on Thursday. A smooth handover is needed to reassure the other EU 27 nations wary of political instability in the euro area’s third-largest economy.

Gentiloni, a quiet figure who speaks fluent English, would also face the task of electoral reform ahead of early elections, and checking the rise of Five Star, which wants a referendum on Italy’s membership of the euro area, before those polls expected in the first half of next year.

EU Workings

As foreign minister since October 2014 in Renzi’s government, Gentiloni is more than familiar with the workings of the EU, and pushed European partners to share the burden of migrants crossing the Mediterranean from North Africa. He also co-chaired talks on the Libyan crisis with U.S. Secretary of State John Kerry.

A former journalist and a descendant of a noble family, Gentiloni has long been a Renzi loyalist and he can count on the support of the outgoing premier who remains leader of the Democratic Party, which is the biggest in parliament.

On Britain’s exit from the EU, Gentiloni has said that Europe has “every interest” in maintaining economic and foreign relations with the U.K. and “we are flexible up to a certain point.” Reneging on the fundamental principles of the EU “would not be doing anyone a favor,” he said on a visit to New York in September.

Even before Gentiloni met the head of state on Sunday, Luigi Di Maio, deputy speaker of the lower house and a leader of the Five Star Movement, dismissed the prospect of a Gentiloni administration as “an avatar government -- Renzi resigns but he’s still there.”