Italy’s Electoral Chaos
Alexander Privitera a Geoeconomics Non-Resident Senior Fellow at AICGS. He is the head of European affairs at Commerzbank AG. He focuses primarily on Germany’s European policies and their impact on relations between the United States and Europe. Previously, Mr. Privitera was the Washington-based correspondent for the leading German news channel, N24. As a journalist, over the past two decades he has been posted to Berlin, Bonn, Brussels, and Rome. Mr. Privitera was born in Rome, Italy, and holds a degree in Political Science (International Relations and Economics) from La Sapienza University in Rome.
The Italian elections have resulted in gridlock. With polls increasingly painting a picture of utter confusion, and no obvious majority, Italian commentators displayed growing incredulity. Many international observers are already betting on new elections. But it is a mistake to jump to such a conclusion. Whether Italians are asked to cast their ballot again in the next few months largely depends on what the social democrats of the Partito Democratico (PD) and Berlusconi’s People of Freedom Party (PDL) do in the next few weeks. We’ll list a number of possible scenarios below.
What we know at this point is that Berlusconi staged an impressive comeback, but he also fell well short of his share of the votes in the last elections in 2008. He can claim that he has saved himself and his closest allies from implosion, but the end of the era of a party built around the cult of the Berlusconi personality is merely postponed.
It is clear that Pierluigi Bersani’s PD failed to capitalize on Berlusconi’s past mistakes. In fact, Bersani allowed Berlusconi to make a comeback by running a lackluster, often arrogant campaign. At times he behaved as if he was already prime minister, delivering uninspiring speeches to unconvinced audiences. He came across as an apparatchik. Both leaders—Bersani and Berlusconi—are perceived as part of an old, discredited political establishment. Their combined share of votes is shrinking.
Voters also punished Mario Monti, the outgoing prime minister. His poor showing in the polls is a bitter personal disappointment for the technocrat turned politician, and a sound rejection of his policies of austerity. He too was perceived as a representative of the old establishment. Even worse, for the majority of Italians, Monti acted on behalf of international investors and a European Union dominated by Germany’s chancellor Angela Merkel. Monti, the darling of international financial markets, is left with very little political capital and will likely share the fate of many of his technocratic predecessors. He provided a short-term fix for a country in need of long-term solutions. The Monti era is coming to an end before it even began. But does his fall mean a return to politics as usual for Italy?
I doubt it, simply because the only real winner of this election is the politician who was perceived by voters as the only true outsider: Beppe Grillo, the comedian turned populist politician. His so-called Five Star Movement will have a loud and powerful voice in parliament and refuse to play by the rules of traditional Italian politics. This makes him an unpredictable factor.
But there is another message that Italians delivered through the polls, one that should worry Chancellor Merkel. A solid majority of Italians not only rejected austerity, they also raised their voices against Germany’s current leadership, proving once again that all politics is local and that international interference is counterproductive. Well more than 50 percent of the votes went to the parties most critical of Merkel and what is perceived as her diktat of austerity.
The responsibility of navigating this delicate situation now falls to Italy’s president Giorgio Napolitano, who just last week visited the White House and was urged to help Italy stay the course of reforms. It is Napolitano who must now start consultations with the leaders of all political parties represented in parliament. If it becomes evident that no government could muster a majority in parliament, new elections will be held. However, there are many reasons why this is an unlikely scenario. First and foremost, Napolitano’s priority will be to stabilize the current situation in order to avoid a prolonged political vacuum. Second, the current president cannot make the decision to call a new election because his term expires in May and the Constitution forbids any president in the final months of his or her term to make such a decision. The current parliament would need to choose a new president first. Furthermore, political parties may insist on the reform of the controversial electoral law before agreeing to a new round of voting, a process that could take a substantial period of time. Napolitano would be forced to nominate a caretaker government while parties squabble over the details of the reform. Markets would likely show impatience and increased volatility during a prolonged period of negotiations. Last but not least, in the event of new elections, Italians might punish the well established parties even more, and thereby strengthen Grillo’s hand further.
This is a slippery slope and one that could very well end in disaster, not only for Italy but also for Europe. Angela Merkel can ill afford a deteriorating Italian situation while she is gearing up to run her own re-election campaign in Germany. Once the dust settles, all the major Italian parties will realize that a new vote will only increase the volatility of the situation, and that their best bet is to deal with the bad hand they have been dealt.
In fact, there are two possible outcomes to this election, one that is new and untested and one that could be described as more traditional. Let’s first look at the former, which would entail a loose alliance between the PD and the Grillo movement. Bersani is already trying to make tempting proposals that could convince the so-called “grillini” to support him, such as reducing the number of representatives in parliament and slashing privileges for the members of the political “caste.” Whether a PD led minority government, backed or tolerated by the Five Star Movement, can restore stability is an open question. Grillo’s supporters might conclude that Bersani is trying to split them and therefore grow restless. Attempts by the PD to co-opt Grillo supporters could even backfire.
There is one more possible outcome to this election. It is a traditional approach that receives very little attention, largely because Italian politicians, particularly on the left, have argued that it won’t happen: a grand coalition, also known as a government of national unity. If talks between Grillo and Bersani were to collapse, this could in fact turn out to be the only viable way out of the current impasse. The strength of the Grillo movement in both houses, capable of blocking any possible center-left or center-right majority, could very well push right and left into each others’ arms. The two main parties, the social democratic PD and Berlusconi’s PDL, could be forced to sit down and make a deal in order to avoid a fresh round of elections. In this scenario, Berlusconi could step out of the limelight, but he would make sure that his lieutenants defend his personal interests at the bargaining table. PD and PDL would have to tread very carefully because their credibility among Italians is shattered and the Five Star Movement would exploit any misstep that smells of “old order.”
Would such an outcome be a disaster for Italy? If you listen to some German economists, you would think that the only bad outcome of the Italian crisis would be a government lead by Berlusconi. Holger Schmieding, the chief economist at Berenberg Bank, thinks that the Monti government has already done the heavy lifting for Italy and that what is needed now is a steady hand. Some experts argue that as long as any future coalition sticks to fiscal austerity and does not reverse any of the reforms imposed by the technocrats, Italy will emerge from the crisis without further shocks. A grand coalition could actually deliver on implementing a limited set of goals. Nobody should be under any illusion that such a grand coalition, likely lead by a leading member of the PD, would survive for very long. But a deal along these lines would at least give the established parties enough time to regroup and stave off the growing wave of the so-called Grillini (the supporters of the Five Star Movement). At this point however, it is difficult to imagine that any government emerging from this election would be very stable and in a position or willing to stick to German inspired austerity.
Not surprisingly, other observers look at Italy’s fundamentals, such as the country’s now chronic lack of competitiveness, and paint a bleak picture. There is enough there already to be worried about. Recent data indicate that Italy is still not gaining ground on its powerful trading partner to the north, Germany. Italy’s positive current account adjustments are largely due to a collapse in imports and domestic demand, not because of significantly lower labor-per-unit costs. Credit is still scarce despite the bold steps undertaken by the European Central Bank. According to the latest figures released by the Italian Banking Association (ABI), the ratio of non-performing loans is rising. A return to growth would certainly be possible, but only if Italy’s economy can be lifted by stronger global and European growth. So far there are no signs for such a turnaround in Europe. Despite some encouraging data coming out of Germany, the German economy is increasingly decoupling from the rest of Western Europe as solid exports to emerging markets offset weaker European demand for German goods. France’s economy is stalling and may well slip into a recession.
A prolonged period of uncertainty in Italy will further dampen hopes for a recovery later this year. Europe’s future now really hinges on Rome. Unfortunately, most Italians either haven’t grasped this or simply are too angry to care.