(Bloomberg Opinion) -- Matteo Salvini is back with a vengeance.
The leader of Italy’s right-wing League had disappeared from the political limelight after he tried and failed to force a new election in August, falling out of government. A triumph in a local election on Sunday shows he’s primed for a return.
Italy’s right-of-center coalition — made up of the League, the Brothers of Italy and Forza Italia — stormed to victory in the small central region of Umbria, traditionally a stronghold of the left. A number of local scandals assisted the parties in pulling off their unprecedented win. But the result is a warning shot to the ruling Democratic Party and Five Star Movement, and a sign that Salvini remains extremely popular with voters.
In the past two months the left-of-center Democrats and their populist coalition partners Five Star have reassured international investors that Italy has no intention of clashing with the European Union (as it did under Salvini’s rule), let alone of leaving the single currency. A prudent budget has helped slash the country’s borrowing costs, pushing 10-year bond yields to 1%. But the two parties have failed to strike a chord with the electorate, as the budget also included tax hikes and new administrative burdens, some of which had to be reversed.
The Democrats and Five Star have spent much of their time in government arguing with each other, leaving voters to wonder what they can achieve. These divisions have given Salvini heart after a difficult summer. The League leader had pulled the plug on the previous League-Five Star coalition government as he’d hoped this would trigger an election. He was outmaneuvered by his opponents and saw his poll ratings dip.
Since then he has regrouped, rebuilding an alliance with his former partners in Silvio Berlusconi’s Forza Italia and the far right Brothers of Italy, and attacking the government for its tax hikes. The League is now back at about 33% in the polls and the right of center parties look on course for an absolute majority in any future election.
The “yellow-red” coalition between Five Star and the Democrats always looked like a bad idea. The two parties had spent years trading insults, especially after Five Star teamed up with the League. It would have been better to have given Salvini his election this year. He would have almost certainly won, but that would have provided a true test of governing alone.
The League would have had to resolve its ambiguity over Italy’s membership of the euro, a vagueness it was allowed to maintain so long as it was (in name at least) the junior partner to Five Star in government. The Democrats and other parties would have had time to build a credible alternative from opposition.
Five Star and the Democrats have a difficult road ahead. Luigi Di Maio, Five Star’s leader, is presiding over a number of internal revolts after his party slumped below 10% in Umbria. Nicola Zingaretti, the leader of the Democrats, faces an equally tough challenge from his predecessor Matteo Renzi, who has set up his own centrist party and could destabilize the government. Fear of Salvini is keeping this coalition together but that won’t be enough to glue together a cohesive and resolute governing agenda.
Italy has found a short-term fix to the risk of market instability through this coalition government, but it is not a long-term solution. Slow growth, towering debt and highly uncertain politics will continue to daunt Rome.
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Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.
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