Paolo Gentiloni Picked As Italy's New Prime Minister

With the ECB snubbing Italy on Friday, and refusing to grant insolvent bank Monte Paschi more time to find a financial rescue, it was of paramount urgency for Italy to announce a replacement government that of outgoing prime minister Matteo Renzi, in order to mitigate concerns about the ongoing political chaos.  As a result, on Sunday, Italy’s President Sergio Mattarella asked departing Foreign Minister Paolo Gentiloni - a loyalist from Renzi's Democratic Party - to form a new government, in the process hopefully bringing to a close a political crisis triggered by a ‘no vote’ in a referendum on constitutional reform last weekend.

As the WSJ first reported, Mattarella gave Gentiloni the mandate to try to form a new caretaker cabinet. Gentiloni, 62, accepted and will begin consultations with political parties to put together his team of ministers. That list could emerge as soon as Sunday evening, setting the stage for the new government to seek votes of confidence in parliament by Tuesday. Correspondents say that if he is successful in rallying support a government could be formed in days.

A quick biographical snapshot of the new prime minister:

  • Born to an aristocratic family, has the title Nobile
  • Worked as a journalist on an environmental magazine
  • Organised Francesco Rutelli's successful 1993 campaign for Rome mayor
  • Elected to parliament in 2001
  • Communications minister from 2006-08
  • Appointed foreign minister in 2014
  • Dealt with difficult issues such as killing of Giulio Regeni in Egypt

Gentiloni said in a brief speech that he has accepted the mandate “with great honor and responsibility”. He added he’s aware of the urgent need to address the economic and social problems Italian citizens are facing and the country’s upcoming international commitments.  “I’ll be back to Mr. Mattarella [with a list of ministers] as soon as possible,” the premier-designate told reporters.

The political development signals a rapid resolution to a government crisis sparked by the resignation this week of Prime Minister Matteo Renzi, who stepped down after a stinging defeat in last Sunday’s referendum on constitutional reform he had staked this political future on.  As noted above, the urgency stems in part from the need to deal with a growing crisis at Banca Monte dei Paschi di Siena SpA, Italy’s No. 3 lender and one of Europe’s weakest banks. The Tuscan bank urgently needs a capital injection, but with little appetite from private investors, the new government will likely orchestrate a state rescue plan. The problem became even more pressing Friday after the European Central Bank refused the bank’s request for a 20-day extension on the end-of-year deadline the central bank set for the lender to raise new capital.

Given the need to act quickly on Monte dei Paschi, Mr. Gentiloni is likely to reconfirm Economy Minister Pier Carlo Padoan, a well-regarded economist who has led Italy’s efforts to solve the country’s banking problems; Padoan had also been rumored to be the frontrunning candidate for the PM position.

As the WSJ notes, in choosing Gentiloni, Mattarella is reaching for a seasoned politician who enjoys cross-party esteem in Italy, something that can help him navigate the political tensions that have exploded since the resignation of Mr. Renzi. Italian parties are now pushing hard for elections to be brought forward from their current timetable of spring 2018.

 

However, the country needs a new electoral law before Mr. Mattaralla can dissolve parliament because of a court challenge to the current law. Moreover, there are two different electoral rules for each of Italy’s parliamentary houses, a situation that would likely produce a hung legislature.

 

Mr. Gentiloni enjoys wide support within the center-left Democratic Party, the largest party in parliament. He also has a good relationship with former Premier Silvio Berlusconi as a result of Mr. Gentiloni’s stint as communications minister in the mid-2000s. Those relationships could help him with the complicated task of rewriting voting rules just as an election looms.

 

Mr. Gentiloni is also highly regarded on the international front. Having joined the Renzi government as foreign minister in October 2014 after Federica Mogherini stepped down to become Europe’s foreign policy chief, he has spearheaded Italy’s efforts to gather international support for a solution to the Libyan crisis.

 

Mr. Gentiloni has also had to strike a delicate balance regarding Italy’s Russia policy. While the U.S. has pressed European leaders to take a hard line on Russia, Rome has struck a more conciliatory tone with Moscow, arguing that the West should work more closely with Russian President Vladimir Putin to resolve the crisis in Syria and elsewhere.

A new government will be sworn in after Gentiloni holds consultations with the other parties, and chooses choose his ministers. The premier and his new cabinet will then be required to win confidence votes in each of Italy’s two parliamentary chambers to fully take power. That will likely happen before this Thursday, thus allowing Mr. Gentiloni to represent Italy at a European Union summit that day.

It remains to be sen if the rapid change in Italy's government will provoke more confidence among potential Monte Paschi investors, or if the third rescue plan of the bank will conclude with nationalization, a step many had expected could take place as soon as today.