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New Governments in Germany and Italy: Fears of Rampant Populism May Be Exaggerated



In their most recent elections, Germany has chosen continuity and Italy has taken a big jump into the unknown. In early March, German social democrats voted to support another grand coalition under the leadership of Chancellor Angela Merkel, while empowering anti-immigrant and far-left parties as the main opposition. At the same time, Italy's voters elected a new but hung parliament dominated by populist parties. In both cases, most media commentary has focused on the anxiety over surging voter support for populism and anti-European, anti-immigrant sentiment. But these concerns are overblown. Neither Germany nor Italy appears on the brink of political crisis.

Germany: Grand Coalition Ends Power Vacuum

Yes, the two-thirds of German social democrats who supported the new grand coalition likely did so because they saw it as the lesser evil compared to facing German voters again. But their decision ends the vacuum at the center of European politics and should enable the new German and French governments to begin negotiations about a new set of euro area reforms.

But anti-populist parties, while now a strong opposition, are not about to make a breakthrough in Germany. Yes, Germany's post-war near two-party system is eroding, but that phenomenon is testament to new societal cleavages transcending the traditional left-right economic and redistributive questions, not a sign of the demise of German democracy.

Like other European countries, Germany now has an anti-immigrant party in parliament, as well as a sizeable leftist party, Die Linke. They command a combined voting bloc of just over 20 percent of the voters, entirely manageable within traditional continental European parliamentary systems.

Italy: Populists Dominate Parliament But Are Poles Apart

In stark contrast to Germany and the rest of continental Europe, the election in Italy produced for the first time a parliament in which explicitly populist parties—the Five Star Movement (MS5) and the Northern League—received most seats in both chambers.  

Their victories rule out any opportunity for a majority anti-populist grand coalition between the traditional parties and the appointment of a technocratic prime minister, as in the past. No Italian government can be formed today without the participation of at least some of the populists.

As Italy's largest single political party by far, MS5 cannot be kept out of power. The appeal of both it and the Northern League would only grow if they were shut out, making early elections risky.

But can these populists use their majority to do much? That is not clear. They are simply too far apart on crucial economic and budget policy areas and would have trouble agreeing on a prime minister in what some call a "nightmare coalition." Neither Luigi di Maio, leader of the MS5 movement, nor Matteo Salvini, the leader of the Northern League, would want to play second fiddle in a coalition government. On economic issues, moreover, MS5 is a left-leaning party.  It favors a universal basic income that would transfer wealth to the poorer Italian south, whereas the Northern League favors large tax cuts via a flat 15 percent tax that would benefit Italy's wealthier north. Never mind that their fiscal policies likely would not respect EU budget rules.  These two parties are not likely to agree on a budget, making any tie-up implausible or temporary.

President Sergio Mattarella of Italy must now try to overcome these differences by coaxing together a coalition government or call for new elections following yet another likely rewrite of the Italian election laws. New elections under a new set of rules, however, are only likely to strengthen the populists' electoral clout, because they are the ones with the majority in parliament needed to approve any new election law. The true nightmare for Italy would therefore be if MS5 and the Northern League simply led a caretaker government and agreed between themselves to change the Italian election law, granting the largest party or coalition a "majority bonus" and giving it more than half of the seats in Parliament, before calling early elections. Such a development could make a new election campaign essentially a two-party populist race between MS5 and the Northern League as the largest member of the center-right coalition.

A Leftist Coalition Is the Only Politically Feasible Option in Italy

Apart from an unlikely MS5 and Northern League coalition, other mathematically possible—though politically improbable—coalition options exist. An almost traditional grand coalition would be one between the rightwing coalition (the Northern League, Forza Italia, and the Brothers of Italy) and the center-left outgoing incumbent Democratic Party (PD). Another option would be for the entire rightwing coalition to join with MS5, though the same incompatible economic policies would likely ruin such a deal. Moreover, the MS5 has always despised Forza Italia leader Silvio Berlusconi, making the personal politics of such a deal even more problematic.

This leaves the prospects of a de facto leftist coalition between the PD and the MS5 as the only politically feasible option. A prolonged negotiation and drafting of a German-style detailed coalition agreement could likely help alleviate concerns about MS5's policy positions. But on the other hand, Europe's political history is littered with the corpses of parties that went into coalitions as the junior partner. It almost always ends in disaster for them.

As in Germany, the negotiations to form a government could take months. The PD has a strong incentive to see such negotiations through: If talks fail, it would not do well in another election, probably losing to MS5 as the uncontested dominant leftwing political force in Italy. Assuming the MS5 would become a more moderate and traditional leftwing party, Italy may be headed for a new political era in which the MS5 movement replaces the PD on the left while the Northern League and Forza Italia emerge on the (now more extreme) right. In the 1990s, the then traditional Socialist and Christian Democratic parties collapsed in a corruption scandal, paving the way for the emergence of the PD and Silvio Berlusconi. History might be repeating itself.

The basic political reality is that any leaders in this mix will quickly realize that Italy cannot afford their economic proposals or their on-off advocacy of turning against the European Union and the euro. Italy is, despite (or perhaps because of) its government's indebtedness, a nation of ageing savers unlikely to want to return to the lira or question the commitment to the euro. Approximately €1 trillion in Italian government debt (or about 50 percent of the total) is owned by Italian banks, insurance companies, and households. Any attempt to restructure this debt is likely to anger voters. Like the Syriza party in Greece, the new firebrands in Italy will have little choice but to moderate with time.

Follow @Jfkirkegaard on Twitter.

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