The Keys to Chigi

Since his December 2016 humiliation in a national referendum to change Italy’s constitution, former Prime Minister Matteo Renzi has struggled to engineer a political comeback for himself and his Democratic Party (PD). 

Having pushed for early elections set for this March 4, Renzi expected to sweep back into power.  However, polls show his support has waned in the face of strong populist sentiment, a resurgent right-wing, persistent unemployment and a slow economic recovery.     

Comedian Beppe Grillo’s Five Star Movement (MS5), has used a populist message to weaken traditional parties and secure major electoral victories in former PD strongholds, including Rome and Turin.  The party’s mixture of anti-immigration and EU-skeptical views has resonated with voters whose support for the EU plummeted following Italy’s drubbing from the dual Eurozone recessions. The election of 31-year-old Luigi Di Maio and shrewd use of the technology have MS5 presenting itself as the party of change.    

Meanwhile, Italy’s conservatives seek to revive themselves by rallying under the familiar face of former Prime Minister Silvio Berlusconi and his Forza Italia party. Many believed his career was ended after he exited the premiership in 2011. Today, many Italians view Berlusconi as a moderating force in a turbulent political sphere. His directness and disregard for traditional political standards have allowed him to rally support for his coalition with nationalist party Lega and several minor parties. In contrast to his previous political personae, Berlusconi now casts himself as a pro-European, socially-conscious politician. Yet his alliance with the Lega Nord, and its radical leader Matteo Salvini, could temper any shift to the middle and ferment further backlash against immigrants.

Vexing Issues: Unemployment, Immigration, and a Weak Economy

In the run-up to the election, unemployment, immigration and the economic situation have ranked as the top three concerns that Italians had with their country.

Figure 1: Most Important Issues Facing Italy. Source - European Commission (May 2017)

While the economy is slowly improving, unemployment remains stubbornly high relative to its EU counterparts, despite a succession of attempts by the Italian government to temper it.  Only Spain has an unemployment rate higher than Italy’s 11.25%.  By contrast, Germany is at virtual full employment with an unemployment rate of 3.83%.

Figure 2: Unemployment in Italy (% of work force). Source - OECD (2017)

Further compounding the employment situation is the low participation rate among Italy’s working population. This is constraining efforts to boost the domestic economy and wages while also straining the government’s budget.  According to the OECD, social spending now accounts for 28.9% of the nation’s GDP.   

Figure 3: The Employment Rate (% of working pop.). Source - OECD (2017)

Amongst its major trading partners, Italy suffers one of the lowest workforce participation rates. At 35.1%, Italy also has Europe’s third-highest youth unemployment rate, adding to economic instability and political unrest. 

Italy’s low spending on its education systems and training programs is believed to have led to a mismatch of skills unrivaled by its major peers.

This unsatisfactory situation has been a death knell for many of the PD’s hopes, as young voters deserted the party in the 2016 national referendum that led to Renzi’s ouster.  Polls show his tepid support among the young could be enough to deny a return to the presidential palace. 

More storm clouds have been brewing. Since the start of the European migrant crisis in 2015, Italy has been on the forefront of the migrant wave, often as the primary point of entry into the EU.  Under Europe’s current migration law, the Dublin Regulation, the country through which migrants enter must be the one that processes their EU asylum application.

 Figure 4: Migrant Arrivals in the Mediterranean by Country. Source - Statista (July 2017) 

Figure 4: Migrant Arrivals in the Mediterranean by Country. Source - Statista (July 2017) 

This has overwhelmed Italy’s bureaucracy.  The country has seen a rise in xenophobia and racist attacks.  It has also provided an opening for PD’s political opponents to secure greater political support.  Former Prime Minister Silvio Berlusconi has stated that immigrants were not welcome in Italy, but “we'd make exceptions for anyone bringing over beautiful girls.”

Facing public outrage over the number of migrants flowing into the country, the Italian government is threatening to close its migrant route could also be closed with less than savvy deals to stem the flow or refusals to take in rescue boats, ideas that both Lega and the Five Star Movement have championed. 

The wave of distrust of traditional parties that has upset national politics elsewhere has also taken its toll in Italy.  A recent poll shows a majority of Italians now view their national parties unfavorably, a sentiment not expected to improve in the short run.  Nor does the vast majority of Italians like or believe the promises being made by the political parties ahead of the elections. This has fueled apathy among voters, with a third of Italians saying they will not vote in the upcoming election. 

 

 Figure 5: Poll from the Pew Research Center (Spring 2016)

Figure 5: Poll from the Pew Research Center (Spring 2016)

The high number of undecided voters creates a wide range of possible electoral outcomes on March 4, all of which could fuel greater uncertainty about the Eurozone’s cohesiveness and drive.

In particular, an electoral win by the Five Star Movement could imperil many of the EU’s biggest projects like the proposed European Monetary Fund & European Investment Budget.  These are the very antithesis of M5S’s anti-Euro, pro-Russian stance.  Were M5S to enter government, it could torpedo many, possibly all, of French President Emmanuel Macron’s ambitious projects for Europe. M5S, as well as the pro-Russian elements within Berlusconi’s coalition, could also weaken the EU’s sanctions regime against Russia by rejecting the imposition of fresh sanctions and creating new divisions in the EU akin to those that now exist between Brussels, Warsaw and Budapest.

The Five Star Movement has already proven its capabilities by playing a key role in defeating Renzi’s constitutional referendum.  It could now wreak further havoc across the EU.