Italy: Roman Theatricals

All attempts by the political parties to form a new government in Italy have come to nothing. Italian State President Mattarella thereupon decided yesterday evening to try to install a “neutral” government before the end of this week. Mattarella’s plan is that this new version of a transitional solution should steer the country’s affairs until the end of the year – and, above all, get the 2019 budget passed – in the event of the parliamentary parties failing to cobble together a coalition. A new government (it remains unclear who would lead it) would have to face a vote of confidence in parliament within ten days of being sworn in by the state president. The Lega and the Five Star Movement (M5S) have already both declared that they would not be prepared to back such a confidence vote. Instead, these two groupings are demanding that new elections should already be held in July. The latest opinion-poll readings are probably the root-cause of their desire for Italians to return to the ballot boxes before very long: these suggest that the M5S and the Lega would both pick up a bigger share of the vote than at the last election – the M5S would be set to gain around 33% and the Lega some 22% of total votes cast. Were the „expert government“ not to win the parliamentary vote of confidence, however, it would stay in office as a caretaker government. New elections would only have to be held within 70 days if the state president were to dissolve parliament. But Mattarella has already stipulated that he will only allow new elections when the 2019 budget has been safely passed. Furthermore, there are also deliberations that Italy would first need a new electoral law enabling clearer parliamentary majorities.

In view of the balance of power in parliament and of the differing interests of the parties leading in the opinion-polls and of the state president, there is a threat of the current deadlocked situation persisting or even escalating further. From the market’s point of view, the latest developments mean an even longer spell of uncertainty, which is not something which investors, in principle, appreciate.  The most favourable solution in the current circumstances would involve a government of recognised experts remaining in office for as long as possible. For one thing, that would reduce political uncertainty, at least for a transitional period; for another thing, it could prevent a less predictable government of populist forces from taking over the reins of power. Moreover, it would leave more time for the electoral law to be amended in order to lower the risk of a renewed political impasse. By contrast, early new elections under the auspices of the present electoral law would be the worst possible option from the market’s perspective. The latest opinion polls suggest that there is a threat of radical forces being strengthened further; there would be an even greater likelihood of a populist government not reined in by the participation of moderate parties. At the same time, talks between the M5S and the Lega could break down again; then at the latest, Italy could be pushed to the verge of ungovernability.

A compromise between Mattarella, on the one hand, and the M5S and the Lega, on the other, could entail a new parliament being elected in the autumn, with both parties cooperating, at least on the budgetary front. However, it is unlikely that there would be sufficient time to promulgate a new electoral law by then. In view of the differing interests involved and of past experience, the electoral-reform process would be likely to prove protracted and intractable in any case. From the investors‘ point of view, therefore, uncertainty factors and possible negative scenarios are currently predominant.

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