Italy set for ‘coalition gridlock' and 'instability’ after election

  

The Italian election results point towards further instability and coalition gridlock as Pier Luigi Bersani and Silvio Berlusconi failed to clinch a majority in either legislative chamber. The 5-Star Movement, led by Beppe Grillo, emerged as the strongest party.

 

Italy remains severely divided after a national election held Sunday and Monday (24-25 February) as the center-left and center-right coalitions divide the two legislative chambers electorally.

The centre-left coalition, led by Bersani, is estimated to have reached 31.6% in the Senate and 29.5% in the Chamber of Deputies. The centre-right, under Berlusconi, received 30.7% in the Senate and 29.18% in the lower house, while Grillo and his 5-Star Movement had the strongest showing in both houses with 23.7% and 25.55% respectively.

The party led by outgoing Prime Minister Mario Monti, Civic Choice, received 9.1% in the Senate and 10.5% in the Chamber of Deputies.

Due to Italian electoral laws and a split result, strong coalitions are unlikely to emerge, pointing towards a hung parliament and reelections in the upcoming months.

“Everyone’s worry has materialised and Italy remains ungovernable. Bersani’s own coalition is with Vendola, who doesn’t exactly agree with Monti, while the other coalition partners in Monti’s party also look very unstable,” Marco Incerti, research fellow at the Centre for European Policy Studies, told EurActiv.

“Fundamentally this is a block and the centre-left needs Mario Monti and others, making a coalition even more instable and improbable. Don’t forget that the small supporters that make up Monti’s party and Bersani’s base are a mixture of ideologically unaligned parties, which tend to disagree about quite a few things. That’s another serious reason for gridlock, beyond the election figures,” Incerti said.

Un-governable Italy?

Based on exit polls, Italy looks ill prepared to start negotiations about potential Parliament coalitions. Italians may have to take vote again in the upcoming months.

“If Bersani relies on Monti, the coalition is going to be very unstable, in part due to its heterogeneous character,” said Incerti. “Bersani’s coalition partner Vendola used to be a communist, while Monti’s support comes from Casini and Fini, both of which have partaken in various coalitions in the past, including center and far-right partnerships,” said Incerti.

All coalitions, including the centre-left and Monti’s centrist group, are riddled with ideological differences, including policies concerning austerity, a European currency and taxation. The success of the 5-Star Movement raises concerns about Italy’s economic future, as several of its party members have expressed Eurosceptic opinions.

Markets reacted strongly to uncertainty.

“Grillo will be a menace for economic stability, as financial markets are of course reacting badly to incredible and Eurosceptic candidates, including Berlusconi,” said Salvatore Morelli, economics lecturer at the University of Oxford.

“The election results are dangerous because Berlusconi promised rebates and the return of taxes collected from 2012. The IMU property tax is practically half of Monti’s 2012 policy – meaning that if Berlusconi or any other coalition touched on these promises by reimbursing the €11 billion from 2012, while not asking for more in 2013, Italy as a whole is €20 billion poorer and in the need for taxation elsewhere,” he said.

“In the end we have a European agreement we have to live up to – you can’t get rid of that. And if this starts happening, it’s really a slippery slope with a domino effect of instability due to the perverse impact of financial market credibility and interest rates,” said Morelli.

One of the reasons instability looks likely is because Italy has such serious and necessary economic policies ahead of itself, Morelli continued.

"On one hand it must ensure that its policies are coherent with financial markets and the fiscal compact. New austerity doesn’t necessarily help, while more taxes and less spending also creates recession tendencies. It’s a vicious circle and it could also have a negative impact on the spread and the Italian economic situation, making it much more difficult for Italy to live up to its fiscal compact agreement with Europe."

"All of this, while government coalitions remain uncertain. It’s the dog that bites its tail,” Morelli said.

Positions: 

Spanish Foreign Minister Jose Manuel Garcia-Margallo said there was a feeling of "extreme concern" over possible movements in bond spreads as a reaction to the Italian election results.

"This is a jump to nowhere that does not bode well either for Italy or for Europe," Garcia-Margallo told journalists on the sidelines of a conference in Madrid.

The Spanish government said it was monitoring the situation, especially the fallout on financial markets as the premium investors demand to hold Spanish 10-year debt rather than the German benchmark jumped to 393 basis points, a level not seen in several weeks, when it emerged a cabinet could be hard to form.

Spanish Economy Minister Luis de Guindos said Spain had a strong liquidity position and could cope with market jitters after the Spanish Treasury sold close to 11 billion euros ($14.5 billion) of debt last week.

Timeline: 
  • 15 March 2013: First Parliament meeting
  • 15 April  2013: Parliament and regional delegates meet to elect the new President of Italy
  • 15 May 2013: End of mandate of the current president of Italy, Giorgio Napolitano
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