Italy's Establishment Faces Populist Push With No Champion

(Bloomberg) -- The Italian establishment is heading into a showdown against the populists with its armies in disarray.

Former Prime Minister Silvio Berlusconi’s center-right Forza Italia has been practically swallowed up by Matteo Salvini’s League since the inconclusive election on March 4, while the center-left Democratic Party of outgoing premier Paolo Gentiloni is still casting around for a way forward after its worst-ever result.

The League and its would-be coalition partner Five Star Movement, meanwhile, are increasingly setting the agenda. Efforts by former International Monetary Fund official Carlo Cottarelli to forge a short-term technocratic government stalled Tuesday with the populists baying for a fresh election.

For 76-year-old President Sergio Mattarella, who’s battled to ensure the next government will honor Italy’s commitments to the European Union, the risk is that the League and Five Star sweep back through the gates of his Roman palace strengthened by another vote.

“The pro-European ruling class is very weak,” said Giovanni Orsina, professor of government at Luiss University in Rome. “Mattarella has picked the wrong fight.”

Italian bonds have been routed this week as the president’s defenses fray, with the populists set on slashing taxes, ramping up spending and demanding treaty changes from the EU.

Raffaella Tenconi, founder of London-based consultancy ADA Economics, predicted the European Central Bank “will have to step in to support the situation and calm things down” in the near term. She said the risk of Italy leaving the euro common currency “has been blown out of proportion,” speaking in an interview with Bloomberg Television’s Manus Cranny on Wednesday

Former constitutional court judge Mattarella has become public enemy No. 1 for the populists since he vetoed their euroskeptic nominee for finance minister at the weekend, blocking their push to take power. Salvini said Tuesday he’s starting a petition for direct election of the president so he’s answerable to voters. For his part, Mattarella is asking Cottarelli to steady the ship.

The premier-designate had been expected to announce his cabinet on Tuesday, even though the League and Five Star have vowed to use their parliamentary majority to prevent him winning a confidence vote. But Cottarelli left a meeting at the president’s Quirinale Palace without an agreement on his cabinet lineup, fueling speculation that he may abandon his effort to delay the populists’ advance.

Five Star Movement leader Luigi Di Maio said Tuesday he’s ready to cooperate with Mattarella to solve the political crisis.

Read more, Italy Triggers Selloff as U.S. Stock Futures Slide

For Five Star and the League, anger at Mattarella has become a rallying cry for the election campaign ahead. They accuse the Roman elite of entering an unholy alliance with the EU that had held back economic growth and allowed an influx of immigrants from North Africa.

The two parties have the support of almost 60 percent of voters, according to a May 23-28 SWG poll. The League has profited the most from the wheeler-dealing, polling 27.5 percent compared with 17.4 percent in the election in March. Support for Five Star was 29.5 percent, compared with 32.7 percent.

The strongest pro-European, establishment force, the Democratic Party, was little changed at 19.4 percent. Forza Italia’s support was almost halved, at 8 percent.

Euro Talk

It’s still not clear how far the populists would take their challenge to the EU. Both parties toned down their previous opposition to the euro during campaigning for the March election, but their refusal to consider an alternative to euroskeptic economist Paolo Savona as finance minister fueled concern among investors that they may still be plotting to leave the single currency.

“The program of the League-Five Star government wasn’t to cause a stink in Europe, but to reopen the debate about some of its constraints,” Salvini said Tuesday. “These rules are destroying the unity of the European Union: if things aren’t changed, we’re heading for disaster.”

Raising questions about the euro would be a high risk strategy for Salvini heading into a new vote, allowing opponents to argue that he’s putting Italians’ savings at risk and inviting further turbulence in the markets. Former Democrat Prime Minister Matteo Renzi picked up investors’ concerns this week, daring Salvini to take up the challenge.

“If you want to leave the euro, come out in the open,” Renzi said in a Facebook video. “If you have the courage to fight an election on this, we’ll campaign from door to door.”

©2018 Bloomberg L.P.

Bloomberg
Follow All The Political News In India On BloombergQuint