The Italian election held on March 03, gave split results. None of the major parties; Forza Italia led by Silvio Berlusconi, the anti-establishment Five Star Movement (M5S) led by Luigi Di Maio, Social Democrats led by Matteo Renzi and the far-right anti-immigration party the League led by Matteo Salvini got enough seats to govern in one's own right. AS such no government could be formed without some kind of a coalition. The remarkable rise of the far-right and anti-establishment parties has left the traditional establishment parties in Italy from left, centre to right in complete disarray. It has also upset the European Union (EU) as it thought it had successfully beaten back the ultra-right and populists in 2017. In fact such an anti-EU victory in Italy could not come at a wrong time when Britain is leaving EU causing territorial disintegration, Poland and Hungary rolling back democracy, Chancellor Angela Merkel and President Emmanuel Macron are both politically in weaker position and, above all, looming trade dispute with USA and the Russian President Vladimir Putin gaining increasing political grounds in Europe.
The Italian economy for the last two decades have been marked by slow growth and stagnating wages. Some described it as the 'Italian disease'. Italy now is saddled with €2.3 trillion public debt which is equivalent to 132 per cent of its gross domestic product (GDP). Italy has the second highest ratio in the EU only after Greece. Italy also went through a very deep recession. No wonder voters went out to support those populists who promised to turn things around without realising that they might be disappointed with the outcome. Both the M5S and the League campaigned on a programme to unilaterally stimulate the Italian economy by fiscal stimulus involving increased spending and tax cuts. They also threatened, if necessary, to leave the eurozone to regain control over the country's monetary policy.
Despite the Five Star and the League attained a solid majority in both houses of Parliament, the President of the Republic Sergio Mattarella objected to the alliance's choice of Paolo Savona as Finance Minister in view of Mr. Savona's very public anti-EU stand.While the President of the Republic has vast power to protect Italy's constitution during a transition period, but the exercise of that power this time around led to the breakdown coalition's first attempt to form a government. This naturally caused furious reaction from the coalition partners and in effect further strengthened the coalition's partners political position.
More damagingly, President Mattarella's veto led to the crashing down of the bond market and also negatively impacted the stock markets ( an unusual combination).The panicked reaction in the market and the furious political reaction made the President Mattarella to rethink his option to appoint a former IMF official to form a technocratic interim government. This would have obviously led to holding new election which could be most damaging to the future of the European Union (EU), that he was vigorously trying to protect.
The Treaty of Rome signed 60 years ago in Rome laid the foundation of what has now become the EU. Once the most ardent supporter of the EU, most Italians are now disenchanted with it, blaming its fiscal rules for stifling its economic progress for over two decades. Both the Five Star and the League campaigned on the waves of this dissatisfaction with the EU. They blamed everything gone wrong in Italy on the EU - from fiscal policy to immigration. The coalition partners are the Italian version of Trumpism - Italy First. The consequences of such a policy will not remain contained just within Italy itself.
All the parties concerned struck a last-minute deal to avert a new election on last Thursday in view of the turmoils in the financial markets.The newly appointed Finance Minister Giovanni Tria on assumption of his office reassured the markets and told reporters 'no political party wants Italy out of the euro'. This announcement is definitely a retraction from the previously stated position.
Now almost after three months of impasses and negotiations, the anti-establishment the Five Star and the far-right League with their anti-EU agenda have joined in a coalition to form the government. This populist government was sworn in on last Friday. They command solid majority in both houses of Parliament. Giuseppe Conte is the new Prime Minister, heading a government bent on overhauling EU rules on budgets and immigration. Prime Minister Conte has support from both the coalition partners and already received the vote of confidence from both houses of Parliament. Mr Di Maio and Mr Silvani are both Vice-Premiers who are likely to exert tremendous influence on the Prime Minister.
The new government policies to introduce basic income, reduce income tax and pension reform as proposed by the Five Star and the League have been spelled out but not properly costed. They also overtly resort to very optimistic outlook to indicate how propped public expenditures would propel the economy to a growth trajectory. Implementation of those policies, reliable estimates suggest, will cost €100 billion a year causing the debt/GDP ratio to rise. But the proposed recipe is unlikely to redress the longstanding economic problems which are largely structural in nature and related to low productivity; in fact Italy, has been facing a productivity crisis for a long time. The problem has been further compounded by a corrupt and inefficient bureaucracy and very self-centred politicians.
The Five Star is essentially a protest movement, its founder is a famous comedian with popular support in the South of Italy. The league is a ultra-right partly centred in Northern Italy. These two parties are now obvious partners. How their coalition will work out is yet to be seen. But Italy has a long history of short governments. It is also the birthplace of fascism. Many political observers wonder how long this government will last given that not only their geographical power bases are in two different parts of Italy are different - for the League in Northern Italy and for the Five Star in Southern Italy - but also have very contrasting needs.
The mainstay of the present government will, however, be the Five Star Movement as it is the largest party though does not have a single majority. But to successfully govern and to be able to carry through its reform agenda , the Five Star will have to transform itself from a party of protest to a party of government as it will be grappling with difficulties of making decisions in an environment of a coalition government with fairly opposing domestic agenda except their shared anti-EU rhetoric. The League is also not a party to take a backseat either, it was involved in government several times under Silvio Berlusconi. Salvini has elevated his close confidant Giancarlo Giorgetti as Secretary of the Council of Ministers where he will be able to exercise direct influence on Prime Minister Conte. These two parties are not obvious partners. It is extremely hard to see how they can make it work.
Muhammad Mahmood is an independent economic and political analyst.
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