Italy at the Crossroads? 2 Italy at the Crossroads?
Total Page:16
File Type:pdf, Size:1020Kb
Italy at the Crossroads? 2 Italy at the Crossroads? Italy at the Crossroads? Brunswick looks at the main factors influencing the forthcoming general elections in Italy, possible outcomes and their impact on business Italians are heading to vote for the The labour market is also showing country’s new Parliament and encouraging signs, with the leadership on March 4 in what is employment level steadily over 23.1 The new regarded as a crucial test for the million people (equal to pre-crisis European Union at a time when it is levels). electoral system: undermined by a rise of The Rosatellum Euroscepticism, waves of national Financial markets are soaring too: in separatism and poor management of January, the Milan Stock Exchange recorded the world’s best performance the migration crisis. International The new electoral system was with an 8.7% surge (followed by US at investors are also carefully looking at approved by a large coalition in +6.2% and Germany at +5%). the possible outcomes, as the country November 2017. The Rosatellum - is regaining attractiveness on the back Italy’s chances to remain competitive named after Ettore Rosato, an MP of an incipient economic recovery, and create new growth opportunities from the ruling centre-left which is at its strongest since 2010, with will largely depend on the next Democratic Party, who authored declining unemployment, a banking government’s commitment to some the law – is a mixed electoral system emerging from troubled waters crucial measures: setting the country’s system, under which 1/3 of and a positive push towards reforms. debt on a clear downward path; representatives will be elected in single-member constituencies The vote’s outcome is uncertain, and shoring up a banking sector still loaded under a first-past-the-post system, the ballot is marked by three main with Non-Performing Loans, ensuring while 2/3 of the seats will be characteristics: a brand new electoral consistency and stability to the legal awarded by national proportional system; the crisis of traditional political system; reducing the length of judicial representation. parties and a campaign seen as failing proceedings and launching an effective from all sides to address some key de-bureaucratisation process. Every party can decide to run hurdles such as lowering the country’s independently or to be part of a heavy public debt, simplifying a A three-party competition coalition. In the second case, dysfunctional bureaucracy and a parties are required to find a complex legal system. The Italian party system has changed in common candidate for each single- the last ten years from a bipolar to a member constituency. three-party system, with the presence On the right track to of an anti-establishment party (Five Star To reduce fragmentation the law economic growth Movement) in addition to the establishes that single parties must traditional party blocs on the left and reach at least 3% and coalitions at Italy approaches the elections showing the right. least 10% of the national vote to the first signals of recovery after a gain a share of the proportional lengthy and painful crisis. The Additionally, this electoral campaign seats. International Monetary Fund has sees the advent of a fourth contender, estimated that the Italian economy Free and Equal, born as a spin-off of should grow for the 2017-2019 period some leftwing dissidents. Their goal is by +1.6%, +1.4%, +1.2% respectively. to capture disillusioned leftwing voters This recovery, driven by a strong who did not appreciate Mr. Renzi’s performance of export and leadership style and winking to the investments, is due partly to positive centre-right. global trends and partly to policies implemented in recent years. © BRUNSWICK GROUP 2018 PARTY LEADER FOCUS ▪ Open to Brussels 3% threshold Forza Italia (FI) Silvio Berlusconi ▪ Against custom- duties Flat tax (15-23%) for any tax brackets and firms to ▪ Eurosceptic, against relaunch consumption, Brussels 3% threshold employment and tax right coalition right League (Lega) Matteo Salvini - ▪ Protectionist evasion recovery ▪ Against the current Brothers of Italy (FdI) Giorgia Meloni pension system Centre ▪ Against immigration ▪ Inconsistent on European integration Five Star Movement ▪ Fights against political privileges and remuneration Luigi Di Maio (M5S) ▪ Fosters minimum salary for all citizens ▪ Ultra-environmentalist ▪ Europe as the only possible dimension for Democratic Party (PD) Matteo Renzi citizenship, peace and global cooperation ▪ Priority on employment, attention to tax burden leftcoalition +Europa Emma Bonino ▪ Environment and sustainability - ▪ Civil rights and ius soli Centre ▪ State control over the economic system Free and Equal (LeU) Pietro Grasso ▪ State support to the poorest © BRUNSWICK GROUP 2018 4 Italy at the Crossroads? Outcomes and Takeaways for Businesses as candidate for Prime Minister at the burden on corporates, if implemented A single-party head of a centre-left coalition seems to more gradually than the radical cut have undermined its chances of announced during the campaign, government: what winning a majority of Parliament, an might benefit all businesses and are the obstacles? outcome that would have been taken promote investments. In addition, this for granted only one year ago and coalition has already been tested at The combination of the party system would also be the preferred scenario local level, governing the most described above and an electoral law for international investors and markets prosperous Italian regions of without a significant majority premium as a guarantee of further reforms, Lombardy and Veneto. will make it hard for a single party or stability and European integration. coalition to form a government Even a government led by a larger However, this is more of a glass-half- autonomously. According to political centre-left coalition including Free and full view. The potential strong presence analysts’ calculations, a single party or Equal is unlikely, due to the above- of the nationalist-populist component a coalition would only ensure a mentioned conflicts with the members represented by the League, which is parliamentary majority by winning at of the Democratic Party closer to Mr. drawing on Forza Italia in voting least 40% of the votes in the national Renzi and in consideration of Free and intentions (14% and 16% respectively), proportional representation and 70% Equal low standing in polls. coupled with the common intents of the seats in the single-member sustained by Brothers of Italy may constituencies. The most plausible outcome is a trigger a harder stance against EU government led by the centre-right stability constraints and a push to Looking at the latest polls, a single coalition. Given its advantage in the dismantle the pension reforms party government led by the Five Star polls, a further impulse could come introduced in 2012, creating significant Movement seems unlikely. This is the from the so-called bandwagon effect, difficulties in maintaining rigour in scenario most feared by international with undecided voters tending to public finances. Moreover, the investors since it is strongly oriented to choose the most likely winner. introduction of protectionist trade increasing state expenditure and Moreover, the bottom-up strategy measures would lead to a surge in supporting anti-European policies. As adopted for this term, as opposed to inflation and consequently to investor a matter of fact, as it rules out the the past, which features selected local outflow from financial markets as well chance of entering a coalition, Five candidates, is a key move to succeed as to a reduction in the number of Star is heavily penalised by the in the first-past-the-post cross-border deals. Last but not least, electoral system; moreover, it has a constituencies. the centre-right coalition has not yet shallow penetration and very few signalled who it would back as Prime experienced candidates at local level, Overall, international markets, though Minister, thus adding further which may prevent its success in the not enthusiastic, appear less uncertainty. single-member constituencies. concerned about such a scenario than that of a Five Star victory. The BTP- Similarly, the choice of the secretary of Bund spread would only moderately Democratic Party Matteo Renzi to run increase, and a reduction of the tax © BRUNSWICK GROUP 2018 5 Italy at the Crossroads? constraints, are open to international investors and not Towards a grand coalition: inclined to take protectionist measures. But numbers are still far from securing such an outcome, with Forza Italia still A numerical hurdle quite far from 20% and the Democrats tumbling. Moreover, If no single party or coalition wins a parliamentary majority, centre-right leaders had to reach agreements on candidates political groups that were opposed during the campaign will for the first-past-the-post constituencies who will be be required to form a coalition. accountable to a larger electorate than their own party: the falling-out of a centre-right coalition could negatively impact The most unsettling scenario from a financial markets and the stability of local administrations where Forza Italia and business perspective would see a “populist” government with the League govern together. the League, Brothers of Italy and Five Star Movement endorsing protectionist and anti-euro stances. But a range of conflicting views that is broader than the common ground No government, what that unites them and a hard-to-manage contest for leadership makes this scenario quite unrealistic. repercussions? Also, the attempt to find common understanding between If no majority emerges after the vote and an agreement to the Five Star Movement and Democratic Party, which was form a government is not reached, President Mattarella may unsuccessful in 2013, is even more doubtful today as be forced to call new elections. International investors are differences have increased, as have personal differences quite concerned by such a scenario triggering prolonged between their respective leaders.