As Italy Struggles to Establish Who Will Take the Country Forward the Economy Faces Freefall

Maurizio Bragagni
Mar 27, 2018 · 3 min read

So, not only is Italy’s future prosperity and stability hanging in the balance, an alliance of our country’s two populist parties looks more like collision than coalition — and another blow to the EU.

With a coalition majority within reach, Italy’s ship steams even faster toward the inevitable iceberg — and should count itself lucky if it sustains mere collateral damage when a comprehensive sinking is in sight.

Differences run deep between the Eurosceptic party and Five Star. Even those ordinary folk within the parties admit that there is little common ground — but cling to an optimism that has little to commend it.

Meanwhile EU investors are jittery. This weekend the Daily Express noted that financiers and policymakers fear a coalition between the pair, based on defiance of EU fiscal rules and economic nationalism, could cause clashes with Brussels and damage confidence in the country’s ability to pay off its significant debt.

President Sergio Mattarella is due to lead formal coalition talks after the new parliament convenes on March 23 and the speakers of both chambers are elected.

While people are still asking ‘Who won the election?’ officials warn that talks are quite likely to last weeks. There is no clarity and there is no reassurance. That puts the Italian economy on the edge of freefall.

Lega and Five Star began their partnership overtures last week. On Wednesday evening, Luigi Di Maio, 31, who leads Five Star and 45-year-old Matteo Salvini agreed to meet face-to-face this week.

They will not be short of ground to cover during that meeting. There are their views on labour market reform, bank bailouts, pensions and more.

Both parties been critical of the government for failing to go head to head with the EU over its fiscal rules, including sanctions on Russia.

But how can two parties fractured by the areas they disagree on work together to rebuild trust and confidence? These are not small differences. There’s even a North South divide as if policy splits weren’t enough.

Five Star, which won in impoverished southern Italy, presented the priority for its main economic policy as a guaranteed income subsidy for the poor.

The League’s following — business owners and workers in the north — translates that not as an economic policy, but a handout.

Lega (or ‘The League’) with its more prosperous northern and central Italy following, is, to say the least, unsympathetic towards Brussels, aligning itself with Marine Le Pen’s National Front in France.

The party’s main economic policy — a flat tax at 15 per cent — is viewed with distain by Five Star which interprets it as a gift for the rich.

The figures behind both parties’ headline policies make interesting reading –but bear little resemblance to the costs both have presented to introduce them.

Lega also has its anti-immigrant pledge — expressed as a desire to deport 600,000 illegal immigrants but without much substance forthcoming as to how that plan might be achieved.

In order to form an alliance, the League leader would have to break his pact with former prime minister and leader of the centre-right Forza Italia, Silvio Berlusconi, and settle into position as Five star’s number two, in line with the balance of the vote.

However mutterings within the Lega party point instead to hopes that a coalition with Five Star can be avoided in favour of currying further favour with the Italian right while waiting for alliance talks to fail resulting in early elections later this year or early in 2019.

Five Star’s position in a coalition with Lega would let down some of its base. The party has always presented itself as the purest of the country’s political parties, because of its single-mindedness and unwillingness to engage with the opposition.

So the climate doesn’t augur well for a political match made in heaven — or even any match at all.

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