DIVISIONS on the Italian right are increasing the risk that a populist, euroskeptic government could take power after next year’s elections.
Friction between 80-year-old former Prime Minister Silvio Berlusconi and Matteo Salvini of the Northern League has raised the prospect that Salvini might seek an alliance with the anti-establishment Five Star Movement rather than a more natural pact between ideological bedfellows. Polls suggest that could make Five Star’s Luigi Di Maio Italy’s next leader.
“The election is shaping up to be one of Europe’s biggest risk stories because it could produce a hung parliament, or a populist majority,” Federico Santi, an analyst with Eurasia Group, said in an interview. “Five Star and the League refuse to acknowledge they might get together, but we see a 20-percent probability.”
Salvini, 44, has already been making overtures to Five Star, telling newspaper La Repubblica in July that he can imagine a dialogue with the populists on “important issues”, such as honesty in politics, immigration and the fight against crime. Most critically for investors, both share an aversion to the euro, though they’ve tempered their rhetoric in recent weeks after Marine Le Pen’s pledge to abandon the currency ultimately played badly in France’s election.
Investors calm
THE League holds its annual rally on Sunday in the small town of Pontida at the foot of the Italian Alps where the voluble Salvini will lead supporters—some dressed as medieval knights—celebrating a 12th-century alliance against the Holy Roman Emperor. They’ll also lambast today’s European Union.
That’s one of his biggest disputes with Berlusconi. The media-magnate-turned-politician will speak at a celebration of the EU’s achievements at a luxury spa resort in Fiuggi east of Rome a day earlier. Also appearing will be his long-time ally Antonio Tajani, president of the European Parliament, who Berlusconi sees as a potential prime minister.
Although the League has traditionally backed Berlusconi governments since the 1990s, this year Salvini is staking his own claim to head up the Italian center-right. After Berlusconi insisted last week that Salvini should defer to Forza Italia, the newcomer retorted: “The numbers show that the League is the leading movement.”
Still, investors’ concerns about political risk in Italy have abated in recent weeks amid signs that the economy is strengthening. The difference in yield between Italian and German 10-year bonds has narrowed by about 12 basis points from an August peak to 162 points, compared with 213 points in April as Le Pen’s early showing in France fueled concerns of a populist backlash spreading through the currency union.
The economy may grow by 1.5 percent this year if the current pace of growth is sustained, the Italian statistics institute said in August. That would be the fastest expansion since 2010.
Electoral math
NEXT year’s election looks challenging all the same. With no party looking likely to reach the 40-percent threshold that guarantees a majority in the lower chamber, Italy may need at least two of its main parties to cut a deal in order to form a government.
Five Star and the ruling Democratic Party were in a statistical tie around 27 percent in an Ipsos poll published in newspaper Corriere della Sera on September 9, with Forza Italia and the League at about 15 percent each. Add in the Brothers of Italy, and the three right-wing parties could muster about 35 percent between them.
Berlusconi may end up playing the kingmaker if ex-premier Matteo Renzi, the Democratic Party leader whom he has supported in the past, wins the election, according to Eurasia’s Santi. For Loredana Federico, chief Italian economist at UniCredit SpA, a Five Star-led coalition including the League and Brothers of Italy is the least likely outcome. She argues that the mainstream parties may form a “government of national unity” if that’s necessary to break a stalemate.
Di Maio, deputy speaker of the lower house, is set to be named Five Star’s candidate for the premiership on September 23 after an online vote. He said in an interview with Naples newspaper Il Mattino last month that for him—as a southerner—an electoral pact with Salvini was unthinkable, given his party’s historical antipathy to Italy’s poorer south.
But he also said that if he needed support to become prime minister next year, he’d be open to talks with all parties.
“We’d go to parliament, and we’d talk very clearly to the other forces,” he said. “Not to carve up jobs but on a program in the country’s interests.”