By Giovanni Legorano 

ROME -- Italian Prime Minister Giuseppe Conte is set to resign on Tuesday, his office said, as Europe's underlying problems of economic stagnation and political fragmentation start to reassert themselves amid the gruelling pandemic.

The fall of Italy's government, in office for just 17 months, is a symptom of the continuing fissures in Italian and European politics. Established and insurgent parties are struggling over Europe's future, stable majorities are often elusive and leaders are searching for ways to overcome long-term economic underperformance -- nowhere more so than in Italy.

Rome's latest political breakdown is likely to cause concern in the capitals of Europe's stronger economies, such as Germany, which last year agreed to underwrite a massive European Union investment plan for economic recovery from the coronavirus.

Italy, due to receive more than EUR200 billion in EU funds, the equivalent of about $243 billion, is the plan's biggest beneficiary. But Italian leaders' inability to agree on a coherent economic strategy reduces the chances that the EU's third-biggest economy will use the funds effectively.

At stake is not just Italy's chances of escaping from its long economic decline, and of stabilizing its sky-high national debt, but also the political trust between northern and southern Europe that the euro needs for its long-term viability.

Mr. Conte decided to step down after failing to hold together his unwieldy governing coalition, which in turn reflects Italy's fractured political landscape. The prime minister fought with a small coalition ally, led by former premier Matteo Renzi, over how to spend the EU recovery funds. Mr. Renzi pulled out of the coalition, accusing Mr. Conte of seeking personal power over the EU funds while shutting out his small party.

Many Italians are scratching their heads over the political squabbles at a time when Covid-19 continues to kill hundreds of residents a day, heavy anti-contagion restrictions weigh on the economy and daily life, the rollout of vaccinations is sputtering and the EU is waiting to hear Italy's economic plan.

Italy's parties are now set to negotiate in search of a new governing majority, possibly under the stewardship of Mr. Conte once again but perhaps under a new premier. If no majority in Parliament can be found Italy is likely to hold elections in coming months, which would be the first in a major West European country since the start of the pandemic.

The coronavirus seemed to have led to greater political stability in Italy in 2020. Mr. Conte's popularity rose as Italians, like many other Europeans, rallied behind their national leader in a time of crisis. But the government's cohesion proved illusory as soon as major decisions had to be made that went beyond managing the immediate public-health crisis.

The EU's massive offer of grants and low-cost loans to support recovery is seen in Italy as a once-in-a-generation opportunity to revitalize the country's economy. Italy has struggled with chronically low growth rates for the past quarter-century.

The fragmentation of European politics, where traditional center-right and center-left parties have suffered an erosion of their once-broad electorates, has made it harder to build majorities to solve the continent's long-term economic problems, which include how to boost global competitiveness, foster new high-tech industries and sustain cherished social safety nets for aging populations.

Despite Mr. Conte's popularity, many politicians, economists and business people have questioned whether he has the vision to use the EU funds well. The challenge of ending Italy's stagnation has defied a number of prime ministers who had greater economic expertise than the 56-year-old law professor.

Mr. Conte has said he was open to ideas, including from his political critics and Italian business.

Mr. Conte's search for economic answers has also been hampered by the deep differences within his coalition. Besides Mr. Renzi's small centrist party, the government rests on an awkward alliance between the establishment, center-left Democratic Party and the upstart, populist 5 Star Movement.

Their pact, formed in 2019, was mainly tactical: aimed chiefly at avoiding early elections, which opinion polls continue to suggest would be won by a right-of-center alliance, led by the anti-immigration League party.

Seen from other EU capitals, however, Mr. Conte's government was at least pro-EU, reducing fears of rising EU-skepticism in Italy.

When German Chancellor Angela Merkel backed the EU's proposed recovery fund last year, she bet on Mr. Conte's ability to hold his coalition together and spend the money productively. Some other countries in northern Europe resisted the EU funding, reflecting skepticism about whether it would truly improve Italy's economic performance or merely add to its debt.

Italy's political class is likely to come under pressure from other European capitals to resolve the mess in Rome quickly and find a solid majority for a pro-growth strategy. If snap elections are the outcome, Berlin and Paris could anxiously face the prospect of having promised generous financing to a more EU-skeptic government led by the national League and its firebrand leader, Matteo Salvini.

In the coming days, Italy's head of state, President Sergio Mattarella, is expected to consult the parties in Parliament to test whether a new governing majority can be found, averting elections.

Democratic Party leader Nicola Zingaretti said on Twitter that he stood "with Conte for a clearly pro-European government supported by an ample parliamentary base that guarantees credibility and stability to confront the great challenges that lie ahead of Italy."

Few Italians had heard of Mr. Conte when he was appointed premier in 2018. At first, he led a coalition between Italy's two biggest populist parties, the 5 Star Movement and the League. When Mr. Salvini's League pulled out of the government in 2019 and tried to force elections, Mr. Conte instead deftly brokered a new alliance between the 5 Star and the Democrats, showing unexpected survival skills and leaving a frustrated Mr. Salvini in opposition.

Italy became the first Western country hit hard by the coronavirus in early 2020. The government, after initial hesitation, imposed the world's first lockdown of an entire nation. Mr. Conte became a reassuring presence on television as he explained the drastic anti-contagion measures to Italians. His approval ratings rose.

But although the lockdown largely suppressed the virus by summer, infections have rebounded since the fall. Renewed restrictions on everyday life have led to widespread public frustration as well as fears for Italy's fragile economy.

Write to Giovanni Legorano at


(END) Dow Jones Newswires

January 25, 2021 16:28 ET (21:28 GMT)

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