Silvio Berlusconi, leader of the Forza Italia party, gestures as he speaks during a television show in Rome, Italy. (Photographer: Alessia Pierdomenico/Bloomberg)

Italy's Election: A Fantasy Campaign Followed by a Reality Check

(Bloomberg View) -- Few have described the vices and virtues of Italians as well as film director Federico Fellini. But it was Ennio Flaiano, Fellini’s screenwriter, who gave what is still considered the best description of Italian politics to date: “Italy’s political situation is dire, but not serious,” Flaiano quipped in the mid-1950s.

As the country prepares for a general election Sunday, these words ring as true as they did 60 years ago. The electoral campaign of the past few weeks has been a combination of buffoonery, bravado and blissful neglect for the country’s budgetary stance.

Luigi Di Maio, leader of the populist Five Star Movement, presented his list of ministers to the Italian president, as if he had already won the elections. (He was denied a meeting, so he sent the list by email instead.) Silvio Berlusconi, the tycoon and former prime minister, chose to write “Berlusconi Presidente” on his Forza Italia party logo — even though he is barred from holding public office following tax fraud. Political parties have pledged a basic income, a “flat tax,” and “Eurobonds” — offering little explanation of how they would fund these lavish promises, or how they would convince fellow member states to essentially help pay for them.

All of this should worry Italians — except for the fact that it doesn’t matter. The real tragedy of next Sunday’s general elections is that the electoral campaign will be swiftly forgotten the moment the polls close.

A cynic would say this is true of all elections. But the disconnect between campaign promises and reality is extreme in Italy’s case. Italy’s complex electoral system, a mix of proportional representation and first-past-the-post, encourages politicians to say whatever they please. The ensuing power-sharing arrangement, always messy, gives parties the perfect excuse to renege on their promises once in government.

This would be especially true if no party or coalition were able to reach a majority, as it seems likely. The Five Star Movement, the center-right coalition led by Silvio Berlusconi, and the center-left of former Prime Minister Matteo Renzi might well split the vote in three roughly similar parts. A wobbly grand coalition government would be the only possible — if by no means certain — choice.

Even if one bloc were to win enough seats to form a government, that hardly guarantees cohesive governance. For example, Berlusconi’s Forza Italia and the nationalist and xenophobic “League” and “Brothers of Italy” are nominally running on the same ticket, but their electoral programs are still very different. Berlusconi has sought to reassure Italy’s European partners, saying that leaving the euro zone is out of the question since it would be very costly. Matteo Salvini, the League’s charismatic leader, continues to toy with the idea of “Italexit” and has fielded strongly euroskeptic candidates. If the center-right were to get into government, many of their promises would have to give.

Whatever the outcome of Sunday’s vote, reality will start to bite for any government soon after. For a start, Italy is bound by the euro zone’s fiscal rules, which demand Rome reduce its deficit and debt, particularly during an upswing. The European Commission has been lenient with Italy in recent months, but a round of fiscal tightening looks inevitable after the vote.

And, of course, Italy has been able to run a moderately expansive fiscal policy in recent years thanks to the European Central Bank’s unprecedented monetary stimulus, including quantitative easing. This program looks set to terminate around the end of this year. When it does, interest payments will inevitably increase, reducing the room for fiscal expansion.

Five Star looks set to become Italy’s biggest party, though it is unlikely to have enough seats to govern. Like many political parties, it wants to negotiate more fiscal leeway in Europe. It has threatened in the past to pull out of the euro if its demands are not heard, but has since toned down its rhetoric.

Such threats carry little weight, however. In some ways, we’ve see that movie before. When Alexis Tsipras stormed to victory in Greece with its Syriza party, he did so on an anti-austerity platform and even ran and won a referendum to strengthen his hand. His finance minister, Yanis Varoufakis, sought inventive ways to leave the euro — before being sidelined and having to resign. Tsipras’s government is now duly implementing the European rescue program, much like its predecessors did. The reason? The minute it looked like Greece could leave the single currency area, deposits began to disappear from the banks and the central bank had to impose capital controls.

The Greek government inevitably backtracked. Of course, Italy is a bigger and richer economy than Greece. But the same dynamics apply.

So, for all the drama, the recent electoral campaigns in Italy are largely irrelevant. Italians will vote on Sunday. Only after that will they get any sense of the policies their elected officials stand for.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times. 

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

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