ROME • Italian Prime Minister Giuseppe Conte unveiled his new Cabinet yesterday, uniting two rival political parties in an unlikely coalition that is expected to improve ties with the European Union and adopt a softer stance on immigration.
The team of ministers drawn primarily from the anti-establishment 5-Star Movement and the centre-left Democratic Party (PD) will be sworn into office this morning by President Sergio Mattarella.
The previous administration, which was also led by Mr Conte, collapsed last month when Mr Matteo Salvini's far-right League party pulled out of its coalition with 5-Star in a vain attempt to force early elections.
Mr Salvini's gambit backfired badly, ushering in a new alliance between previously fierce political enemies that is expected to tone down his crackdown on migrants arriving by boat from Africa and look to repair strained ties with Brussels.
The key post of economy minister was handed to the PD's Roberto Gualtieri, now head of the European Parliament's economic affairs commission who was influential in last year's negotiations to soften EU rules on state aid to ailing banks.
5-Star leader Luigi Di Maio, who served as deputy prime minister, industry minister and labour minister in the previous administration, was named as foreign minister in the new Cabinet despite having no experience in international diplomacy.
The high-profile Interior Ministry, presided over by Mr Salvini for the past 15 months, was handed to Ms Luciana Lamorgese, a career civil servant with no political affiliation.
Once the ministers have been sworn in, Mr Conte will have to win confidence votes in both Houses of Parliament before the government can officially start work.
Looking to broaden its slender majority in the Upper House Senate, the Cabinet will include Mr Roberto Speranza, who was given the health portfolio. Mr Speranza is a senior figure in the leftist LEU party, meaning the party will become part of the coalition.
5-Star and the PD unveiled on Tuesday a shared, 26-point policy programme for their coalition, putting an expansionary Budget next year at the top of their agenda but pleasing markets with a pledge to draft a Budget that would not endanger public finances.
Emphasising social justice, the two parties pledged to introduce a minimum salary, avoid a value added tax hike set for January and boost spending on education, research and welfare.
Italy's bond market has rallied strongly over the past week on hopes a government would be formed, staving off the threat of prolonged political instability and early elections.
Italy's 10-year bond yield hit a record low of 0.8 per cent and the closely watched 10-year bond yield gap over safer German Bund yields tightened to around 145 basis points - its narrowest in more than a year.
"The formation of the new government ends the summer political crisis in Italy and gives short-term relief to investors," said Mr Matteo Germano, head of multi-asset investments at Amundi, Europe's largest fund manager.
Even though Mr Salvini's exit could usher in a calmer period for Italy's government, 5-Star and the PD also have a history of bad blood, so fireworks between the two parties cannot be ruled out.
Mr Conte will also need to keep an eye on Mr Salvini, who continues to call for new elections.
Mr Salvini will almost certainly pounce on any tension between 5-Star and the PD to back his assertion that the new administration is an anti-democratic, backroom stitch-up.