THE new Italian prime minister, Enrico Letta, had two reasons to smile this week. On May 29th the European Commission recommended removing Italy from the excessive deficit procedure, the "sin bin" for those countries with dodgy public accounts (see chart). Two days earlier, Mr Letta's Democratic Party (PD) emerged unscathed from local elections which, though partial, were the first test of opinion since he formed a ruling coalition with Silvio Berlusconi's People of Freedom (PdL) movement. Release by the commission sends a positive signal to investors in public debt and should thus cut Italy's already shrinking borrowing costs. That should help the economy since lower bond yields will enable banks to lend more cheaply. The local election results had several implications. They showed that linking with Mr Berlusconi was not as damaging to the PD as its former leader, Pier Luigi Bersani, feared. Mr Bersani had resigned after failing to do a deal with Beppe Grillo's Five Star Movement (M5S). The results also make the coalition stronger. Mr Berlusconi will be tempted to withdraw his support as soon as he believes he can win an election. The polls had suggested the PdL was already overhauling the PD. But the local elections told a different story. In Rome, the biggest prize, the PD's mayoral candidate, Ignazio Marino, finished 12 points ahead of Gianni Alemanno, the PdL incumbent. Since neither reached 50%, the two candidates face a run-off next month, but Mr Marino looks likely to win. Another lesson was that the coalition has not boosted the common opponent, Mr Grillo's M5S. Indeed, his movement took only 12% in Rome, a far cry from the 27% it won there in the election just three months ago. Forcing the two main parties into an unnatural alliance was the outcome of Mr Grillo's refusal to negotiate with either. The theory was that it would highlight their similarities and differentiate the M5S. The practice has meant giving up any influence on policy. In a nation of pragmatists, that counts for more. Although he could now face ructions among his followers, Mr Grillo is holding fast to his course. Abstention in the local election was sky-high by Italian standards and the M5S wins much of its support by seducing potential abstainers. It is too early to say that the threat he poses to mainstream parties has gone. As he pointed out on his blog, they continue to bleed support even though the Letta government is still in a honeymoon phase (the PD has lost 250,000 votes in Rome since 2008). Italy's release by the commission will lift restrictions on investment co-financed by Brussels. But it will not, as some hoped, produce a magic €7 billion-10 billion with which to finance Mr Berlusconi's campaign pledge to abolish a hated property tax and give back last year's proceeds. That circle has yet to be squared.