June 5, 2017 / 5:42 PM / 2 months ago

Italian electoral law reaches parliament after parties strike deal

ROME (Reuters) - Italy's Constitutional Affairs Committee on Monday signed off on a new electoral law after the main parties reached a deal which could pave the way to a national election in the autumn.

Deputies will begin debating the law, which is based on proportional representation, on Tuesday, and party leaders say they hope it can be approved in both houses in early July.

In a rare show of unity, all the big parties voiced satisfaction with the system, which is similar to the one used in Germany. Financial markets remain uneasy over the prospect of an early vote and possibly inconclusive outcome.

The spread between Italian benchmark bonds and safer German Bunds closed near recent highs at almost 2 percentage points on Monday and investment fund Pimco said it was selling its Italian bonds due to growing political risk.

"The probability of snap elections in late September or early October continues to rise," Barclays Capital analyst Fabio Fois wrote in a note to clients.

Opinion polls suggest no party is likely to win a parliamentary majority at an election and it is also doubtful whether any likely coalition of parties could muster one.

A vote in October, six months ahead of the natural end of the legislature, is favoured by the ruling Democratic Party and its main opposition rivals, although this is complicated by the need to draw up and approve Italy's 2018 budget.

President Sergio Mattarella, the only figure with the power to dissolve parliament, is concerned about political instability affecting the budget, a source close to the president has told Reuters.

The financial bill must be presented by Prime Minister Paolo Gentiloni's government by mid-October and approved by parliament by the end of the year. Italy has never held a general election after June.

Mattarella had insisted that a new electoral law be drawn up because at present there is too much divergence between the systems for electing members of the two houses of parliament.

The new proportional system, which may still be amended in parliament, would exclude parties that do not reach 5 percent of voting support.

As in Germany, voters will be able to express two votes - one for an individual and one for a party list, though unlike in Germany they cannot vote for candidates from different parties.

Reporting by Gavin Jones

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