With Italian President Mattarella effectively refusing to grant a mandate to Prime Minister designate, Giuseppe Conte, because of the coalition of Five Star Movement (5SM)/Lega Nord (LG)’s choice of an avowedly “Euro-skeptic” Finance Minister, and granting a mandate to another “technocrat”, there is renewed turmoil within Italian politics, particularly as the President’s decision has no apparent precedent in post-1945 Italian politics.
To say that this latest outcome of the elections held earlier this year was unexpected would be an understatement- as current financial market reactions emphasize. On the face of it, the origins, core support and political platforms of each of 5SM and LN “should” have made their ability to agree on forming a governing coalition implausible to say the least, which just shows that there are plenty of “fat tails” still lurking in the democratic process- as further demonstrated by the Italian president’s subsequent actions.
Therefore, it is worth examining some issues which may arise, not just for Italy, but for the EU, should a 5SM/LN government ultimately take power, as may still happen after another round of elections likely to be called for later this year.
Firstly, both parties are demonstrably skeptical of the value to Italy of being a (founding) member of the EU, as well as of the Euro as its currency. As is now a matter of some notoriety, a leaked earlier draft of a purported coalition agreement suggested not only leaving the Euro (and even the EU), but also asking the European Central Bank (ECB) to “forgive” some EUR 250BN (sic) of sovereign debt.
Secondly, the Prime Minister designate, Giuseppe Conte, assuming he gets a second chance, is an academic, which begs the question of exactly who would be in charge of a 5SM/LG coalition government. How the supposed head of government would actually be able to enforce policy, when faced by two party leaders used to their own way remains to be seen. Conte was a compromise, and clearly “disposable”.
Thirdly, a 5SM/LG government would be likely to have very fraught relationships with both the European Commission and the ECB, as its coalition members regard themselves as “fac[ing] continuous attacks from unelected Eurocrats” and seek overtly to overturn the BRRD governing how bank insolvencies are managed, while suggesting that recovery of debts from retail debtors should require judicial sanction. In a context in which the EU is already faced with Brexit, as well as the increasing illiberalism and defiance of the Polish and Hungarian governments, the addition of Italy to the “defiant” category would serve only to increase instability. The rejected first-choice Finance Minister amply demonstrates the point.
Fourthly, while 5SM wishes to introduce a basic income for all citizens, the LN wishes to slash and consolidate tax rates, aiming to grow out of austerity and somehow manage to avoid increasing Italy’s budgetary deficits and borrowing levels. As the phrase goes, “something has to give”.
Of course, the Republic of Italy has a decades-long history of problematic governance (as well as, more recently, economic underperformance), and it would be easy to dismiss the latest events as “no worse than before”. Perhaps they are. However, there does appear to be an increasing risk that a new coalition government, led by two parties who do not subscribe to many of the expected norms, and have minimal to no track record of responsible and pragmatic economic management, would create a climate of increased confrontation with its EU peers, and engage (because of Italy’s importance to the “European Project”) in a dangerous game of seeing who would “blink first” in order to achieve its goals. Pretending that somehow the norms will prevail has echoes of the Weimar Republic.
The Awbury Team are long-standing students of political instability and its potential consequences, bearing in mind that such scenarios bring opportunity as well threats, so we shall be watching closely as the drama continues to unfold.
The Awbury Team