Italy Election Primer: Parties, Policies, And Possibilities

Italy will hold general elections on February 24-25, which will be the first since the onset of the global financial crisis in 2008 and the eurozone crisis in 2010. The vote will also herald the transfer of power from the technocratic caretaker government headed by Mario Monti that took over after the resignation of Prime Minister Silvio Berlusconi in November 2011.

At stake are whether the sense of stability that Monti brought to Italy can continue, and whether the next government can maintain current austerity measures and enact reforms to boost Italy’s long-term growth prospects. Italy is the third-biggest economy in the eurozone and has the eurozone’s second-largest government debt pile, of EUR1.9trn, or 128% of GDP, which is equivalent to about 23% of the eurozone’s overall public debt. Therefore, if the incoming administration mishandles Italy’s economy or raises further concerns about the country’s debt sustainability, then bond yields could surge, causing a new financial crisis. This in turn could threaten the eurozone’s survival.

Ahead of the Italian election, Business Monitor Online has just published a primer outlining the electoral system and main parties, the challenges facing the next government, and the possible election outcomes.

Which Are The Main Parties?

There are dozens of parties running, but most of them will struggle to win enough support to enter parliament. The biggest parties have formed pre-election alliances with a host of smaller parties. The major parties are as follows:

  • Democratic Party (PD): Centre-left, pro-European. Led by former cabinet minister Pier Luigi Bersani. The PD has indicated that it will continue outgoing PM Monti’s austerity measures, but will introduce more pro-growth policies. The party was ahead in the last polls (voter surveys are banned two weeks before the election), with around 30-35% support.
  • Party of Freedom (PdL): Conservative. Led by former PM Silvio Berlusconi and Angelino Alfano. The party has criticised Monti’s austerity measures and taken a confrontational attitude towards Germany. The party is second in polls with around 27% support, having greatly reduced the gap with the PD, thanks to Berlusconi’s campaign skills.
  • Five Star Movement (M5S): Populist, environmentalist, and eurosceptic. Led by comedian and internet activist Beppe Grillo. The party is a fringe group that has attracted a great deal of support from those who are fed up of Italy’s traditional parties. M5S is third in the polls with around 18% backing.
  • Civic Choice (SC): Centrist. Led by outgoing PM Mario Monti, who has decided that he wants to remain in his job. Although he has won praise from investors for his reforms, Monti’s popularity has fallen amid unhappiness with his fiscal reforms. Monti, a technocrat, is also said to lack charisma and campaign skills. SC has around 15% support.

What Are The Main Issues?

Without doubt, fiscal austerity and the state of the economy are the biggest issues, especially with unemployment at a 13-year high of 11.2% and youth unemployment at 37%. Italy’s relations with the eurozone are also a key issue. Corruption is also entering the discourse, especially with the recent emergence of a banking scandal at Banca Monte dei Paschi di Siena, Italy’s oldest and third-largest bank.

What Is The Probable Outcome?

Polls point to the centre-left PD-led alliance winning the election, but it may fail to win the Senate. In Italy, the Senate has equal power to the lower house, and governments need the support of both chambers to function. Thus, the PD bloc could need to form a coalition with Monti’s SC.

A wild card scenario would be a victory by Berlusconi’s PdL party, which would greatly concern investors and cause bond yields to spike.

Our full primer on the Italian election, and in-depth analysis of the eurozone crisis, are available to subscribers at Business Monitor Online.

This blog is tagged to:
Sector: Country Risk, Financial Markets
Geography: Italy

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