ITALY´S POLITICAL CRISIS COMES TO A HEAD / GEOPOLITICAL FUTURES

Italy’s Political Crisis Comes to a Head

After a year of political instability, the Italian government is finally ready to crumble.

By Ryan Bridges

 

The Italian government finally appears to be crumbling under the weight of its contradictions. Deputy Prime Minister Matteo Salvini’s right-wing League party, the junior partner in the governing coalition, filed a no-confidence motion today. But the question is: Why now? The League surpassed its coalition partner, the anti-establishment Five Star Movement (or M5S), in the polls about a year ago, and was reaching 38 percent as far back as a month ago. (Under Italian law, a party receiving 40 percent of the vote can govern alone; perhaps Salvini was merely waiting for the League’s poll numbers to get closer to that threshold.) Moreover, the two parties aren’t at greater odds than they have been for roughly the past year, and the League has only been winning the disputes between the two more and more frequently.

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The decision to pull the plug now is significant. Early indications are that it may not be possible for Italy to hold a new election before Oct. 15, the deadline for European Union governments to submit their draft budgets to the European Commission. Indeed, one possibility is that Salvini is hoping a League-led government could rapidly pass a budget with a big deficit that fulfills his campaign promises of big tax cuts – though, again, that could have been done earlier, with significantly less trouble. On the other hand, as the leader of M5S and the leader of the opposition Democratic Party have both suggested, Salvini could be using an election to skirt responsibility for tough budgetary measures, such as a value-added tax hike worth 23 billion euros ($26 billion) that will kick in automatically next year if holes in the budget aren’t plugged. The notion of a VAT hike is extremely unpopular, and both the League and M5S have been adamant that they will prevent its implementation. Without a government, however, a provisional budget could take effect for the first few months of 2020, absolving Salvini of blame for the VAT increase and the failure to pass his flat tax proposal (the ambitions of which have already been scaled back in recent months). Another theory is that the League has become concerned about potential blowback from “Moscopoli” (which translates roughly to “Russiagate”), a scandal in which one of Salvini’s close aides met repeatedly with Russian officials to discuss channeling tens of millions of dollars in illicit oil money to the party. The trouble with that idea is that the party has grown only stronger since the news of that scandal broke – though it’s always possible that there are more leaks to come. Ultimately, however, it falls to Italian President Sergio Mattarella to dissolve parliament, and he may be hesitant to do so. He will probably leave time for M5S and the Democratic Party, which finished second to M5S in last year’s election, to try to cobble together a new majority, though that is unlikely to succeed. Alternatively, Mattarella could appoint a caretaker administration, but it, too, may not be able to find a majority. The president also reportedly said just a few weeks ago that he wants a government to be in place in September to craft a 2020 budget, but that’s improbable at this late date, unless new elections are somehow avoided. All we can say for sure at this juncture is that Italy’s government is careening toward greater uncertainty. The markets reflect as much: The spread over German 10-year bonds, after lingering close to 200 basis points since the last budget dispute with Brussels ended more than a month ago, had spiked to nearly 235 basis points at the time of writing. What else is new?