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Decision time in Europe to have far-reaching consequences

Next weekend will see an important watershed in European politics, as the results of vital votes in Italy and Germany are expected on March 4. 
The people of Italy will head to the polls to elect a new parliament. The country’s electoral system has undergone reform and, for the first time, one-third of the votes will be cast under a first-past-the-post system and two-thirds under traditional proportional representation. The hope is that this new method will help make it easier for the bigger parties to enter the notoriously fractured Italian parliament and bring stability (Italy has had a whopping 64 governments since the Second World War). 
This will be nothing new for Italians. The main forces battling it out are Silvio Berlusconi’s center-right Forza Italia, which is in alliance with the anti-immigration populist Lega di Nord; former Prime Minister Matteo Renzi and his center-left Partito Democratico; and Luigi Di Maio’s anti-establishment Five Star Movement (M5S). Caretaker Prime Minister Paolo Gentiloni has ruled out seeing the PD go into coalition with Forza Italia, which is why we will most likely see a hung parliament and protracted coalition negotiations.
On Saturday, the right (Lega) and the left (M5S) battled it out on the streets of Milan and Pisa, while anti-fascists held a big demonstration in Rome entitled “Mai Piu Fascismo” (never again fascism).
Meanwhile, in Germany we can expect the result of the Social Democratic Party (SPD) membership’s vote on whether they agree to join a “grand coalition” with Angela Merkel’s Christian Democratic Union and its Bavarian sister party, the right-wing Christian Socialists (CSU). The September 2017 election was inconclusive and the embattled German chancellor has since then tried to form a coalition. Her first attempt failed and she finally came to an agreement in principle with the SPD, which has had to go to its base to ask for permission to enter government.

Italian election and German coalition vote will shape how the continent deals with its societal and economic issues, as well as inform the tone of other EU member states.

Cornelia Meyer

There are big undercurrents in the SPD that do not favour another grand coalition because the party did not do well in the polls after four years in a similar government. It achieved a measly 22 percent of the vote, which was its worst election result in post-war Germany. The outcome of the members’ plebiscite is far from certain and everyone fears new elections. According to the latest polls, the SPD has lost another few percentage points and the right-wing Alternative fuer Deutschland has made up ground since September, crossing the 15 percent mark. Merkel has so far refused to form a minority government and she may have a point. Whereas these constructs are not unusual in Norway, Sweden and Denmark, they are not part of the political culture in the Bundestag (German parliament). German politics are also far more polarized and are bound to become more so now that the right-wing AfD has entered parliament.
These developments are not merely nice-to-observe European idiosyncrasies. They matter. Germany is the world’s fourth-largest and Europe’s largest economy and Italy is Europe’s third-largest. 
Germany is the economic powerhouse of Europe and one of the world’s great trading nations. It is an anchor for stability in the EU, which is particularly pertinent in the light of Brexit. Henry Kissinger used to complain that he had no phone number for Europe; Merkel has become that phone number — whether dealing with the economic woes in Southern Europe, the Ukraine crisis or handling Russia in the context of the Syria conflict. While Emmanuel Macron has ascended to the leadership position, he still has to prove in France that his economic and political revolution has legs. The populists of Marine Le Pen’s Front National may have gone quiet, but they have not gone away.
Italy is also economically important. The economy has stabilized somewhat since the eurozone crisis, but we are far from being out of the woods. There is still $369 billion-worth of bad debt on the balance sheets of Italian banks. Life in the financial sector will become a lot harder when the ECB stops purchasing Italian bonds as it tightens its balance sheet. Rising interest rates, which will eventually be brought in throughout Europe, are bound to provoke more woes for Italian banks and the economy at large.
Developments in Italy and Germany also matter because they highlight the societal undercurrents permeating through most European countries. The populist right is emboldened (AfD, Lega) and increasingly entering parliament and the mainstream. There are the populists on the left as well. Immigration is a big theme: Germany welcomed one million refugees in 2015 and has had its fair share of problems integrating them. Italy bore the brunt of refugees from Africa and, to a lesser extent, the Middle East via the Mediterranean route. In 2017, there were 120,000. There were considerably more in the preceding years, but agreements with Libya held many back — although they are now housed there in inhumane conditions. European solidarity is meager when it comes to dividing up the refugee flow amongst its 28 member states. The migrants have therefore shaped the look of many quarters in Naples, Rome, Como and other cities; so much so that Berlusconi has promised to deport as many as 600,000 in a year if he comes to power. What happens in the election will therefore have a huge impact on the narrative of how Italy deals with its refugees.
The world’s media may not have focused much on what is happening in Europe next weekend, but the outcome of the SPD party vote and the Italian election will shape how the continent deals with its societal and economic issues, as well as inform the tone of other EU member states. 

• Cornelia Meyer is a business consultant, macro-economist and energy expert. Twitter: @MeyerResources