Italian Prime Minister Giuseppe Conte delivers his annual address at Villa Madama in Rome, Italy, on Dec 30, 2020. (PHOTO / BLOOMBERG)

Escalating tensions are threatening to shatter the government of Italian Prime Minister Giuseppe Conte as early as Tuesday, with a junior ally weighing whether to dump the coalition despite the coronavirus emergency.

Ex-Premier Matteo Renzi’s centrist Italy Alive party could pull its two ministers before or after a cabinet meeting called for 9:30 pm, according to officials who asked not to be named discussing private conversations.

Renzi has long criticized Conte’s plans for overseeing and spending Italy’s estimated 196 billion-euro (US$238-billion) share of the European Union’s (EU) recovery fund, which is up for cabinet approval, and has accused the premier of grabbing more power during the pandemic.

If ex-PM Matteo Renzi’s party abandons the alliance, it would rob PM Giuseppe Conte of a parliamentary majority and could trigger a reshuffle, a third Conte government, a similar coalition with a new premier, a broad alliance headed by a figure such as ex-European Central Bank head Mario Draghi, or an early election

If Renzi’s party, which has just 3 percent support in opinion polls, abandons the alliance, it would rob Conte of a parliamentary majority and could trigger a reshuffle, a third Conte government, a similar coalition with a new premier, a broad alliance headed by a figure such as ex-European Central Bank head Mario Draghi, or an early election.

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The center-left Democratic Party, the second-biggest force in the alliance, has warned that a new vote would be a disaster. “It would be a serious political mistake that would penalize Italy, a tunnel with no way out,” party leader Nicola Zingaretti told Sky TG24 television. Surveys show the center-right opposition would likely win a new election.

Renzi has kept people guessing ahead of the cabinet meeting, turning on critics who accuse him of irresponsibly risking political turmoil as the country battles a virus resurgence along with a recession. The ex-premier wrote in his e-newsletter that “there is no irresponsible act, what we’re doing is called POLITICS: study documents, make proposals, give ideas.”

Italian bonds extended their decline and underperformance against euro-area peers amid speculation about political instability and light cash flows. The 10-year yield climbed 5 basis points to 0.62 percent, the highest since Dec 8.

The latest government plan draws on the EU’s package to earmark 223 billion euros for investment and other projects to boost an economy that was weak even before the pandemic, according to a draft seen by Bloomberg.

Spending on infrastructure including railways, highways, ports and logistics totals 32 billion euros, while investments to make Italy’s economy greener total 69 billion euros. Health spending is set at 19.7 billion euros.

The draft suggests Conte has made some concessions to Renzi, particularly on health spending, but lawmakers in Renzi’s party have stressed that the ex-premier also wants Conte to share more power, speed up public works projects and give up control of the country’s secret services.

Italian President Sergio Mattarella, who would oversee any attempt to forge a new administration, has asked Renzi to ensure the parliament approves the recovery plan before he plunges the government into a crisis and was given assurances to that effect, according to officials.

Renzi could pull his ministers from the government this week but still guarantee external support to ensure the parliament approves the recovery plan later this month, other officials said.

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For Conte, it could be the second time a key ally abandons him. The former law professor was plucked from obscurity in 2018 to head a government with the anti-establishment Five Star Movement and the anti-migrant League. Conte forged a second coalition the following year after League leader Matteo Salvini ditched the alliance. His current administration is backed by Five Star and the Democrats.