Who to watch as Italy’s budget drama unfolds

Italy’s determination to deepen its deficit next year is driving up the government’s borrowing costs and riling the European Union’s budget police.

With the populist administration in Rome insisting there will be no climb down before Tuesday’s deadline to submit a more moderate spending plan to Brussels, officials and investors are braced for a rollercoaster week.

The hardliners

These are the people to watch from each of the key factions.

The League and the Five Star Movement are the political driving force in the Italian coalition. They’ve promised to defy the EU to deliver increased spending and risk punishment at the ballot box if they fold. But higher yields are also driving up borrowing costs and that feeds back into the deficit calculations and is straining the country’s banking sector.

Matteo Salvini Age: 45 Job: Deputy prime minister, head of the League Role: Political rainmaker. The right-wing firebrand is currently the most powerful person in Italy and arguably the smartest political opera- tor. He seized ownership of the campaigns against immigration and the European Union to more than double his support since election-day in March. But he’s let others take the lead on the deficit, perhaps because his core supporters in the industrial north are uneasy about all the new spending on the poor it will support. Luigi Di Maio Age: 32 Job: Deputy prime minister, head of the Five Star Movement Role: Spender-in-chief. Salvini’s key ally and political rival probably has more at stake than anyone in the budget battle. He’s been consistently outmanoeuvred by his coalition partner since they took office and needs a big win to shore up his support. His key policy is the so-called citizen’s income which is set to cost as much as €10bn ($12bn) next year. He’s been the loudest voice calling for a wider deficit, so if he changes tack, it may be a sign that the government is ready to retreat.

Giancarlo Giorgetti Age: 51 Job: Cabinet undersecretary Role: Eminence grise. Salvini might have provided the charisma that powered the rise of the League, but Giorgetti is the strategist helping him navigate the minefield of Italian politics. Twenty-two years in parliament have given him deep links with the Italian elite and a keen instinct for how the political system operates. One of a handful of politicians chosen by former President Giorgio Napolitano’s council of wise men after the inconclusive elections in 2013, he’s one of the people whom Draghi calls when he wants to speak to Rome, according to the Italian press.

Laura Castelli Age: 32 Job: Deputy finance minister Role: Firebrand insider. Elected to the Chamber of Deputies with Five Star in 2013, she was among the chosen few involved in drafting the coalition deal. A strong supporter of the citizen’s income, she put pressure on Tria to set money aside for the measure. Castelli started her political career in the environmental movement fighting against the high-speed train line with France, but quickly moved to the Five Star. Right-wing newspaper Libero defined her as “the communist Grillo supporter who will make the budget explode.”

The moderates

The Italian establishment is cornered, with the anger of the populists’ supporters on one side and the threat of financial meltdown on the other. Tria has handled most discussions with the EU and with them he’s trying to thread a path between those twin dangers.

Giovanni Tria Age: 70 Job: Minister of economy and finance Role: Holds the purse strings The academic, moderate, pro-European finance minister was essentially imposed on the populist coalition as a condition for letting it take power. Ever since then, he’s been fighting a losing battle to contain the government’s spending plans. The point of Tria though isn’t to win, he just has to hang on as a brake on his colleagues wilder ambitions. Any sign he might quit or be forced out would be badly received by investors.

Sergio Mattarella Age: 77 Job: President of the Republic Role: Voice of moderation The Italian head of state has a limited range of powers and anything that looks like interference in partisan politics is highly risky. Since the creation of the coalition he’s highlighted the constitutional constraints on the government. His warnings helped convince the administration to lower their deficit targets for the years after 2019, according to newspaper reports.

The EU establishment

The European project seems to be forever at a crossroads. This week its guardians have to weigh a potential backlash from angry Italians fuelling nationalism across the bloc, against the credibility of their rulebook (and the tail risk of an Italian bailout posing a mortal threat to their currency union).

The relative lack of contagion so far makes it easier to tighten the screws without provoking a broader problem. That’s a bonus for EU leaders who still have half an eye on how they can persuade German voters to accept more risk sharing when the risks in Italy seem to be getting worse.

Mario Draghi Age: 71 Job title: President of the European Central Bank Role: Pays the piper The most powerful Italian in global finance is the architect of the quantitative-easing programme that has held down Italy’s borrowing costs—the ECB and the Bank of Italy have been the only net buyers of Italian government bonds over the past four years, according to analysts at Nordea Bank. Draghi warned last month that the coalition’s stance is already pushing up borrowing costs for both companies and consumers. He’s been reaching out to senior officials including Mattarella since then, according to press reports. Jean-Claude Juncker Age: 63 Job title: President of the European Commission Role: Cartoon villain. The head of the EU’s executive is “Europe’s real enemy,” according to Salvini. In reality, the Commission has always blinked in the past when face with budget breaches and officials in Brussels are hoping that the market will do the dirty work this time. Still, comparing Italy to crisis-era Greece hardly eased tensions, either in the markets or in Rome. Pierre Moscovici Age: 61 Job title: European Commissioner for Economic Affairs Role: Enforcer. As the EU’s top economic official, Moscovici — together with commission Vice President Valdis Dombrovskis — ultimately decides on Italy’s budget. The former French finance minister has spent the past weeks urging the Italian government to revise its spending plans. Seen as one of the most sympathetic EU officials when it comes to budget struggles, Moscovici doesn’t have much room to manoeuvre this time because Italy’s deviation is so wide and the commission is aware that its credibility is on the line.

Debt crisis

Italy is still scarred from the euro-area sovereign debt crisis, when pressure from financial markets helped force Silvio Berlusconi’s resignation. There’s plenty at stake for investors too though. Locking in a yield of 3.4% on Italian 10-year bonds could boost your bonus, prompting several large money managers to step back in. The risk is that the brinkmanship goes awry and that paper ends up sliding much further in value.