In the wake of Emmanuel Macron’s victory in France, many argued that anti-establishment parties in Europe were on a downward trajectory. Italy’s election has shattered that illusion. Over fifty per cent of Italians voted for parties that challenge the domestic and European status quo.
Italy used to be one of the most pro-European member-states. After this election, it is amongst the least. The vote will not lead to Italy’s exit from the European Union or the euro anytime soon. But both of these scenarios have now become easier to imagine.
No party “won” the election outright and none will be able govern on their own. The next government will be result of coalition-building. But the Five Star Movement is the forerunner and the single largest party in Italy by a significant margin, with over 30 per cent of the vote.
It is at heart an anti-establishment party and difficult to place on the left-right spectrum. In the past it was very Eurosceptic, but it has moderated its anti-EU stance. Last year it tried to join the Liberal grouping in the European Parliament, and in the election campaign its leader defined the party as “pro-European” and stated he would abide by EU fiscal rules.
Silvio Berlusconi’s centre-Right coalition also performed well, in particular the anti-immigration Eurosceptic Northern League, with almost 20 per cent. The centre-Right was able to ride a wave of discontent over the migration crisis and benefited from a growing perception that other EU member-states have not shown enough solidarity with Italy during the eurozone crisis or in dealing with migration. Many Italians feel the EU does not listen to Italy’s concerns and is run by and for France and Germany.
The big loser from the election is the incumbent centre-Left, with the Democratic Party below the symbolic threshold of 20 per cent. It was unable to capitalise on Italy’s mild economic recovery because of its past support for austerity. And like many European social democratic parties, it was also too ideologically torn to highlight its relative success in curtailing migration flows via a set of controversial deals with Libya.
With no clear majority in parliament likely, Italy’s president will guide coalition talks between the different blocs, and pre-electoral alliances could fragment. One option is that the centre-Right coalition scrapes together enough votes to form a government on its own, perhaps by poaching a few MPs from rival parties. Alternatively we could see a Five Star-led government, in coalition with either the League or the centre-Left. But it’s unclear whether the Five Star could ally with either at this stage: disagreements are profound.
Despite the stalemate another election is unlikely. Fears of political instability will lead to rising yields on sovereign bonds – increasing the pressure on parties to reach a coalition agreement. If coalition talks prove difficult, the likeliest scenario is a so-called “President’s government” of national unity to amend the election law and hold a rerun of the vote later this year.
Whatever government ultimately emerges, it’s almost certain it will be more critical of the EU’s policies than its predecessors. There will be friction between Italy and the EU, as Rome pushes for more solidarity on migration and for an easing of eurozone fiscal rules. Any future government is also likely to be friendlier towards Russia, although it’s unlikely it would try to remove EU sanctions. However, economic shocks are likely to be limited, as any substantial fiscal loosening will founder on the rocks of the EU’s fiscal compact and Italy’s dependence on foreign financing of its debt.
Italy will not leave the EU or the euro in the near term. Neither the Five Star nor the League calls for an outright withdrawal from the EU, and both have softened their opposition to the single currency. Even if they form a government, friction with Brussels would be contained.
But Italy’s election will make life more difficult for the EU. Plans to reform the eurozone, always fraught with difficulties, now seem too difficult to pull off. Paris and Berlin will not trust Rome to clean up Italy’s banks, a necessary precondition for serious reform of the eurozone.
With substantial reform of the eurozone unlikely, Italy’s future depends on whether the EU is willing to give it some leeway on fiscal policy and step up its efforts to help deal with migration. But perhaps most of all, the future depends on the evolution of the Five Star Movement’s outlook.
The party has not yet come to terms with internal contradictions. During the election campaign it toned down its Eurosceptic rhetoric. But, this might re-emerge if the migration crisis intensifies or if a new financial crisis throws Italy’s economy back into recession. That would make the prospect of Italy leaving the EU and euro appear more concrete.