Europe edgy over Italian populist government fears

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Europe edgy over Italian populist government fears

Italy appears on the verge of forming a radical, populist government some two months after March’s election stalemate. The emergence of a potentially anti-establishment, Euroskeptic coalition formed from the Five Star Movement and the far-right League is causing significant concern in Brussels and other European capitals because Italy poses perhaps the biggest threat to the eurozone’s future.

The anticipated administration in this key G7 nation, which has the third largest eurozone economy, comes after March’s ballot saw no single party or wider bloc win an overall majority in parliament. The headlines were captured by the populist Five Star Movement, an anti-establishment group founded less than a decade ago by comic Beppe Grillo and now led by 31-year-old Luigo Di Maio, which capitalized on a rancorous campaign that was dominated by immigration and the country’s economic woes.

After weeks of torturous negotiations, Five Star — whose biggest previous political wins had been in mayoral elections in key cities like Rome and Turin — appears set to renege on a previous pledge not to enter into a coalition with another party. Ultimately, it looks likely to take a leap of faith to align with the League, with which it has key policy similarities, after the two collectively gained more than half the votes in the election.

Presuming a deal is agreed, it would need to be approved by the memberships of both parties. This injects further political uncertainty into the picture.

The potential Five Star-League coalition represents a worst-case scenario for Brussels. This is especially so given the poorer showing of the two main pro-European forces that have dominated Italian politics for decades: The right of center Forza Italia and the center-left Democratic Party.

The country has the second biggest debt load in the European single currency area at over 130 percent of GDP, and its banking sector is under significant stress with massive under-performing loans. The fear is not just the expected political stripe of the coalition, but also that it may well be weak and unstable, raising the prospect of political paralysis.

A key initial task of the anticipated administration will be securing the passage of a 2019 budget, where Five Star and the League want to see tens of billions of euros of new spending. Key domestic policy priorities include the possibility of cutting taxes in the form of a new flat tax, and introducing a universal basic income.

But most international eyes will be on policy toward fellow European countries and the EU, which is expected to be troublesome. The League’s leader Matteo Salvini has attacked perceived “unacceptable interference” by Brussels in the Italian coalition negotiations since March, while Di Maio has referred to “continuous attack… from Eurocrats” and it is clear that both will push Brussels to rethink the stability and growth pact that keeps budget deficits below 3 percent of GDP.

Italy’s inconclusive election looks to have been the midwife for a radical, populist coalition that could shake up Europe.

Andrew Hammond

Salvini has previously asserted that he wishes Italy to leave the EU, while Five Star has become more pragmatic in its Euroskepticism over time; asserting the country should reconsider its role in the EU and have a referendum on whether it should keep the euro single currency. 

Another flashpoint in Brussels-Rome relations could come over immigration. Both Five Star and the League regard current levels of inward migration to the country as "unsustainable for Italy," especially in the context of current high unemployment in the country.

Tensions are therefore likely to be high not just between Italy and Brussels, but also other key European powers like Germany and France, which have traditionally been the twin motors of EU integration. There is little obvious appetite in any of these power centers to change rules, or grant exemptions to countries, on migration or debt.  

At the same time as tensions between Rome and Brussels could grow significantly, the League and Five Star have also sought a re-evaluation of the relationship between Italy and Russia. This includes calling for the lifting of EU sanctions against Moscow.

With such renewed political angst in a nation where there has been more than 60 national governments in the post-war era, concerns are growing again about the country’s future. There remains significant public angst over corruption, the nation’s migration crisis, and the continuing fragility of the economy, with double-digit unemployment and low growth. Indeed, only Greece has fared worse in the eurozone in the last 20 years, which has fueled the political success of Five Star and the League.

Part of the reason for March’s inconclusive election outcome was the introduction of a new voting system that is two-thirds proportional representation and one-third first-past-the-post, making it harder for any single party (especially the anti-establishment Five Star with its growing popularity) to win an outright majority. The threshold for any single party to have a working majority is now around 40 percent of the vote, which no party has come close to securing.

It is for this reason that President Sergio Mattarella may ask for a review of the new election law to see if a less proportional, more first-past-the-post system is better suited to the nation’s needs following the last two months of political uncertainty. This could therefore rehash the constitutional debate the country had in 2016, when then-Prime Minister Matteo Renzi’s planned reforms to usher in greater political stability were voted down in a national referendum. 

Taken overall, Italy’s inconclusive election looks to have been the midwife for a radical, populist coalition that could shake up Europe. However, even though Five Star and the League won more than half the vote in March, a key danger is that the new administration may be incapable of securing the structural reforms that the country badly needs.

  • Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.
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