Italy’s two anti-establishment populist parties, Five Star Movement (M5S) and Lega (NL), formed an alliance to pass the first challenge of setting up a new Italian government. Last Friday they came together and struck a deal to elect the speakers of the upper (the Senate) and lower houses (the Chamber of Deputies) of Parliament.

Francesco Gasparetti from Senigallia, Italy – Flickr: Palazzo Madama, Rome, Italy

Last Saturday, Roberto Fico was elected as the lower house speaker, thanks to the nomination of M5S party chief, Luigi Di Maio, and the deal struck by M5S and LN.

In return for the M5S nomination of Fico, the Lega-led coalition (consisting of Lega Nord, former Prime Minister Silvio Berlusconi’s Forza Italia, Fratelli D’Italia and less-prominent Noi con L’Italia) elected Maria Elisabetta Alberti Caselatti, a close aide of Berlusconi, to be the speaker for the upper house.

Previous overnight reports said Berlusconi and Lega leader Matteo Salvini were involved in a split. Instead, both politicians showed a strong commitment to governing the country.

The deal is vital, as it can pave the way for necessary consultations between the last election’s winners and the country’s president, Sergio Mattarella. The president will hold talks with leaders of all the parties on April 3.

Italy held an election on March 4 to elect a new government. No single political party won 40 percent of the votes, meaning some form of a coalition between political parties is necessary to form a new Italian government. The Euroskeptic and anti-immigrant M5S came as the single largest party to win the election by taking nearly 33 percent of the votes. A center-right coalition gained 37 percent of the vote, followed by the former ruling Democratic Party with 23 percent of the vote.

Each coalition type has its flaws

While many in Italy are relieved and hopeful now that the Italian political parties were able to compromise and elect the Parliament Speakers, some political experts raise concern over the viability of any coalition.

J.P. Morgan economist Marco Protopapa explained that both the M5S-center-right and the M5S-Lega coalitions have their shortcomings.

Despite the success of M5S and NL in electing speakers to both houses of Parliament, Protopapa warned: “In our view, a non-mainstream government M5S-NL could hardly be a proper political government.” As he told CNBC, he believed if anything, it would be a temporary solution to make sure the country goes to a new election at the earliest possible date after the summer. Protopapa noted the hostilities between NL and M5S and the dominance of the M5S party as obstacles to a successful coalition.

What’s next?

Italy’s President Sergio Mattarella will still need the outgoing center-left Prime Minister Paolo Gentiloni to help the president mediate the April meeting to set up a new administration.

European Union eyes watch carefully as the growing power of the anti-establishment political parties sparks concern that the new Italian Government might violate E.U. fiscal rules and threaten to leave the E.U. The M5S and NL campaign platforms included a flat income tax, a guaranteed universal basic income, and an overhaul in pension reforms.

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