(Bloomberg Opinion) -- Italy is famous for its spells of political trouble, and the twists and turns of this summer’s government crisis are no exception.
Last week the country was staring at the prospect of a new national election, which looked set to crown Matteo Salvini, leader of the hard-right League, as prime minister. Now a coalition between the populist Five Star Movement (the League’s current ruling partner) and the center-left Democratic Party has emerged as a genuine possibility. That would avoid the need for an election as Five Star would simply swap one set of coalition allies for another.
There’s much to worry about with Salvini, from his anti-immigrant views to his flirtations with wanting to quit the euro. But a “yellow-red” partnership between Five Star and the Democrats would hardly fix Italy’s ills.
Salvini clearly mistimed his electoral power grab. He could have pulled the plug on the government right after the elections for the European Parliament at the end of May, when his party won more than one-third of the votes. Instead he waited until August, when the League presented a motion of no confidence in Prime Minister Giuseppe Conte. The summer break meant the proposal could only be discussed this week, allowing time for Salvini’s weakened opponents to regather their forces.
There are also doubts about whether elections can be held in the autumn since there might not be enough time for the new government to put together a budget for 2020.
The Democrats, who feared inevitable defeat in an election, seem open to striking a ruling pact with Five Star instead – either just to pass a budget or for a longer-term coalition. Five Star, whose poll support has collapsed, is reveling in the opportunity to strike out at the League and to act as kingmaker once again. All options remain on the table and it might be unwise to bet against Salvini given his popularity with voters. But his dithering means the prospect of a yellow-red government is a much more realistic prospect than it was barely a few months ago.
Yet this combination would be pretty dangerous for Italy for at least three reasons. First, the League is by far the best supported party in the country so it’s perhaps unwise to leave it out of government. Of course, Italy’s a parliamentary democracy so it’s legitimate for Five Star and the Democrats to build an alliance, just as Five Star and the League did after last year’s election. But this sudden volte-face would give Salvini another opening to rail against the establishment and the political class – rather than forcing him to prove that he’s actually capable of governing.
Second, any Five Star and Democrat coalition would probably be short-lived. The two parties have traded insults for months, as Five Star attacked the Democrats for being part of an old corrupt elite that ruined Italy, while the latter accused the populists of incompetence. They also have different policy agendas. Five Star has supported the League’s hard line on immigration, which the Democrats oppose. Five Star is also against infrastructure projects supported by the center-left. Any coalition would most likely break down quickly, paving the way for an eventual triumph of Salvini and the right.
Finally, the possible economic agenda of a Democrat-Five Star pact would make a left-wing populist like the British Labour Party leader Jeremy Corbyn proud. The two parties would probably press for more state aid when needed and for greater spending covered by even higher taxes. Italy already needs to find 20 billion euros ($22 billion) to avoid a planned increase in VAT, so there’s little room to increase the deficit to fund new measures.
The two parties may feel there are sound tactical reasons for teaming up. The European Central Bank looks set to announce a new package of monetary stimulus in September, which would help push down the yields on Italian bonds. Salvini’s current strength may also falter at some point. He could, for example, face an internal revolt at the League as the party’s traditional base in the north may feel he hasn’t done enough to advance their economic interests. This might explain why he’s looking so scared of going into opposition, after taking to the beaches this summer to drum up support.
Nevertheless, the long-term strategy for the Democrats and Five Star is very unclear and that’s no way to revive Italy’s stagnating economy. This summer’s political crisis may be the most absurd yet. Unfortunately, it won’t be the last.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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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