Italy on Friday rapidly edged closer to an early election that could move the country further to the right, with markets sinking amid political uncertainty and concerns that the country's already touchy relations with the European Union could suffer.
Milan's stock market plunged by 2.3% Friday morning, hours after Deputy Premier Matteo Salvini, whose right-wing League party is the junior coalition member, announced he would no longer support Premier Giuseppe Conte's 14-month-old populist government.
Borrowing costs on Italian debt – a measure of investor confidence, jumped higher.
Pushing his anti-migrant agenda, Mr. Salvini is already unofficially campaigning to be the next premier. Although no new election date has been set, and the Italian president hasn't indicated if or when he will dissolve Parliament, a return to the ballot box could come as early as late October.
A campaign and vote this fall would play out just as the Italian government, with Parliament's support, hammers out a new budget to meet EU rules. There are already concerns the government might have to hike value-added tax to cover populist spending aimed at pleasing voter constituencies.
"Salvini fires Conte: 'Let's Vote,'" was Italian daily La Stampa's terse summation of the government crisis sparked by the League leader.
Mr. Conte demanded late Thursday that Mr. Salvini, who is also interior minister, lay out his reasons in Parliament for refusing to back the government he helped form after 2018 elections that brought populists to power for the first time in Italy.
It's up to Mr. Salvini, in his roles as senator and League leader, "to explain to the country and justify to the voters who believed in the prospect of change the reasons that lead him to interrupt ahead of time, abruptly, the work of the government," Mr. Conte said in a widely televised speech.
Mr. Salvini wants to capitalize on soaring popularity seen in opinion polls, local and regional voting, and the European Parliament elections earlier this year. Those have also shown a plunge in support for the oft-bickering 5-Star Movement, the League's coalition partner whose sometime left-leaning platform has kept the League from pulling the government farther to the right.
League senators on Friday pushed for a confidence vote in Parliament on Conte's government that the premier would likely lose, given Mr. Salvini's refusal to keep the coalition going.
Lawmakers had just left Rome for vacation, and it was unclear how soon the presidents of both chambers would call them back into session to hold debate and a vote.
Mr. Salvini is impatient to formally pull the plug on the government.
Lawmakers "should move their rear-ends and come to Parliament, if need be, even next week, because millions of Italians are also working the next week, and the week after," Mr. Salvini told a sea of cheering supporters Thursday night in Pescara, a small city on the Adriatic.
Although he himself has spent much of the last few weeks at the beach, Mr. Salvini frequently depicts himself as the champion of the rank-and-file working class.
Far-right leader Giorgia Meloni, a likely ally in any League-led government, said in an interview with Corriere della Sera that elections could yield a government determined to make the "politically incorrect reforms that Italy needs," making the country crack down even harder on immigration and adopting "Trumpian" economic policies along the lines of the U.S. administration.
An alliance with Ms. Meloni's staunchly nationalist party could see Italy's already often-tense relations with Brussels deteriorate.
Financial markets were digesting the possibility Mr. Salvini could be premier in a few months.
Michael Hewson, chief market analyst at CMC Markets UK, noted that Italian bond yields jumped sharply on the prospect that Mr. Salvini could "win a majority in any upcoming vote, an event that could take place sometime in October, just before the U.K. is scheduled to leave the European Union."
"October could be an interesting month!" Mr. Hewson said in a written comment.
This story was reported by The Associated Press. Colleen Barry in Milan contributed to this report.