Back to the Center: Italy's New Governing Coalition Faces Tough Choices

September 4, 2019 11:00 AM
Photo Credit: 
REUTERS/Ciro de Luca

Italy’s new governing coalition, combining the populist Five Star Movement and the center-left Democratic Party, has done more than sideline the right-wing forces of League Party leader Matteo Salvini. The new more centrist alliance is certain to calm nervous financial markets and reassure the European Union that its appointments to the European Commission and the European Central Bank will provide greater stability and cooperation on European matters. But Salvini, leading the opposition, is hardly likely to slink away from the Italian political scene.

Prime Minister Giuseppe Conte continues in office under the new political arrangement; clearly Salvini’s electoral gamble in leaving his coalition with Conti’s Five Star Movement to try to force new elections backfired spectacularly. Perhaps he did not foresee that the Five Star populists would join a governing coalition with the very political establishment the movement was founded to oppose. Many Five Star members will keep their parliamentary seats and positions in government in the process. One has to wonder how many of them will gradually migrate to the Democratic Party during the life of the new coalition.

The new government’s first challenge is to agree on a 2020 government budget. The coalition’s new 26-point political program makes it clear that its leaders will pursue an expansionary fiscal policy next year. The platform envisions a gift shop of higher minimum wages; no VAT increases; more spending on education, research, and welfare; and a new public bank to help boost growth in Southern Italy. Italy’s economic stagnation makes a well-designed fiscal stimulus a sensible policy, provided these steps are accompanied by economic reforms to boost labor force participation and productivity. The new coalition will need to agree on enough such pro-growth reforms to get Brussels to sign off on increased fiscal spending.

The challenge of moving forward on these programs depends heavily on how Salvini fares as the new leader of the Italian opposition. Current polls suggest that his League Party could easily have won a snap election, a point underlined by his political opponents’ eagerness to avoid one. Moreover, given the risk of further economic weakness in Italy and the difficulties in passing a new budget, he might fancy forcing the new governing coalition to take responsibility for the economic hardships facing Italians. Taking advantage of such an opportunity could position Salvini well in winning the next Italian election due no later than May 2023.

But several issues also cloud Salvini’s political future. The new government may do unexpectedly better in economic terms than current projections suggest. And the new government is certain to publish all available information concerning Salvini’s financial dealings with Vladimir Putin in Russia, posing a political, legal, and financial risk for Salvini’s near bankrupt League Party. And lastly, if the new government is able to maintain the number of new immigrant arrivals in Italy at the current low levels, Italian voters may conclude that Salvini and his anti-immigrant tirades have been left behind by events,[1] reducing his electoral changes.

Italy, in other words, has moved—again—in the direction of stability in the short term, while facing long-term fragility of its economic and financial situation.

Note

1. Immigrant arrivals in Italy fell dramatically in late 2017 well before the Five Star Movement–League coalition came to power in May 2018.