What lies ahead for Italy? Monti’s resignation makes early elections inevitable. The parliamentary calendar may be tweaked to speed up the adoption of the budget law. But it is reasonable to assume that parliament will be dissolved before Christmas – or immediately after, at the latest.
We are therefore looking at elections at some point in the second half of February. This is not a huge change, given that Italians were due to vote in early April anyway. But it was still sufficient to trigger a new round of market instability, as events suggest that Italy could go back to pre-Monti squabbling between parties – putting the country’s reform agenda at risk.
Early elections also mean that there will be no time to pass a new electoral law. The existing rules guarantee a solid majority in the lower chamber of parliament to the winner. But they risk delivering an unstable majority – or no clear majority at all – in the Senate. This is a risk Italy should have avoided running.
Italy’s Eurozone partners, the European Commission and the European Central Bank will be watching the elections closely. And it will be interesting to see how central the Eurozone crisis (and Europe) will be in the campaign. The key will be the tone used by the parties – and this is precisely what makes Berlusconi’s comeback relevant.
Over the last few months, Berlusconi has launched a series of attacks on a “hegemonic” Germany imposing austerity on the rest of the Eurozone, and stressed that the “disastrous” economic policies enacted by Monti’s government ought to be overturned to drag Italy out of recession. Given that his party is trailing in all opinion polls, Berlusconi may opt for populist, anti-austerity (and potentially anti-German) rhetoric to regain ground ahead of the elections. This is all the more likely if the historic alliance between Berlusconi’s party and Lega Nord – which has called for a referendum on Italy’s membership of the euro – is restored.
Add comedian Beppe Grillo’s Five-Star Movement – another supporter of a euro referendum – to the mix, and we may be looking at elections where, if these three parties perform according to latest opinion polls, around 40 per cent of Italians would back forces that call for an end to excessive austerity and (in the case of Lega Nord and the Five-Star Movement) are not supportive of Italy’s euro membership.
Monti has done a decent job of steering Italy in the right direction in terms of fiscal consolidation, bolstered by a few (but not enough) structural reforms. But the latest events confirm that political uncertainty remains Italy’s real Achilles heel – and this isn’t going to change overnight.
Vincenzo Scarpetta is a researcher at Open Europe.