The Keys to Chigi

After being humiliated in a national referendum, Matteo Renzi, Italy’s former prime minister, has been laser-focused on re-entering Palazzo Chigi even if that means dividing his party as well as creating an opportunity for the populist Five Star (Cinque Stelle) party to seize control. In recent regional and municipal elections, Renzi’s Democratic Party (PD) has lost hold of strongholds, such as Turin and Rome, to the Five Star party, leaving the party in disarray as it seeks to mount a comeback. Yet, after dramatic promises during his past premiership, many Italians are disenchanted and are unlikely to wholeheartedly embrace him once more despite Italy emerging from recession under his party’s reins. With the further fracturing of the PD’s support base, the dramatic return of Silvio Berlusconi and the continued strength of the populist Five Star Movement, despite setbacks in Rome, the center appears to be failing. It seems that once again, Italian politics seem to be entering another turbulent phase at a time that Europe cannot afford it. Here is how we reached this.

In polls conducted by the European Commission, unemployment and immigration as well as the economic situation 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 economic situation has improved, unemployment has remained stubbornly high despite a succession of attempts by the Italian government to temper it, as illustrated below:

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

Since the crisis, Italy has seen its unemployment jump by 7% before finally decreasing by a meager amount to its current 11.25%, making it second amongst its major peers in terms of unemployment. For reference, Germany’s economy is enjoying record low unemployment at 3.83%.

Furthercompounding this issue is the poor rate of the working population that is part of the workforce.

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, thereby constraining any efforts to boost the economy and wages, but also straining the government’s budget with social spending accounting for 28.9% of the nation’s GDP according to the OECD – far higher than the vast majority of its peers. This has made fixing it a painful enterprise, without a doubt, and has limited the ability of the government to enact fiscal stimulus to bolster the domestic economy. Furthermore, Italy suffers from the third highest youth unemployment rate, which stands at an abysmal 35.1%.

This can be seen as a result of poor spending on Italian education systems as well as training programs leading to a mismatch of skills that is unrivaled in many of its major peers.

This leads us to the third policy issue that faces Italy – immigration. Italy has been on the forefront of the migrant wave, often being the major point of entry into the EU, especially after the migrant deal with Turkey. Under current European migration law, the Dublin Regulation, the country that migrants enter must be the ones processing the asylum application into the EU. 

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 led to the overwhelming of the nation’s asylum system, while also resulting in two predictable effects: the rise of xenophobia and racism as well as further straining the national budget. The former has helped parties, such as Lega Nord, secure greater political support, especially, and can also be seen as a key reason as to why former Prime Minister Silvio Berlusconi has seen a political resurgence. After all, Berlusconi once said that immigrants were not welcome in Italy, but “we'd make exceptions for anyone bringing over beautiful girls.” Facing public outrage overwhelming numbers flowing into Italy, the Italian government is, in increasing frequency, threatening that this migrant route could also be closed with less than savvy deals to stem the flow or refusals to take in rescue boats, both stances where the populist parties, Lega Nord and the Five Star Movement, excel. Yet, with a fertility rate lower than Japan and a rapidly aging population, Italy could use the migrants as a vital means of growth and innovation as their northern peers are attempting to do. Though, without the surpluses of countries, such as Germany, the Italian government must successfully lobby the EU executive for further funds in order to build the infrastructure needed, particularly cellular, in order to harness the migrants as a means of growth. While this has resulted in pledges of funds of up to €100m, further funds are needed to achieve a successful outcome. Additional pressures from the xenophobic tendencies of the populace have further added to the impetus to secure a long-term solution. If a solution were not reached, political pressures would likely force Italy to take unilateral action to deny migrants passage to the European continent, thus putting it firmly in the crosshairs of EU Commission and drawing international condemnation. While accepting migrants is currently toxic in the current political state, the application of Realpolitik and the successful lobbying of funds from the EU would serve Italy well by providing it the means to “kill two birds with one stone,” so to speak.

This leads us to the final issue – trust in the government. Italians have been deeply skeptical of their national government and of parliament with recent polling putting public trust in these institutions at 17% and 18% respectively, but since the devastating Mani Pulite, faith in the political parties themselves has dipped far lower. Surveys have shown that the majority of populace view the national parties unfavorably, and, in the short run, are not expected to improve. This is compounded by the fact that a recently conducted survey suggests that the vast majority of Italians do not like or believe in the promises being made by the political parties ahead of the elections. Compiled with this outcome is the depressing result that more than a third of Italians said they would not vote in the upcoming election, thereby indicating severe disillusionment with the current state of affairs.

 

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

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

In a number of fields, previous governments have failed to build trust with the Italian people due to a continuous cycle of political infighting, scandals and corruption. This has led to a gradual depression of support in the mainstream parties, but also the devastation of the center with former Prime Minister Matteo Renzi presiding over the splintering of the left. To make matters worse, Silvio Berlusconi has mounted an astonishing return to politics in his typical, bellicose form, though, these days he is often outdone by another. The result has been a three-horse race between the right-wing faction, comprised of the Lega Nord and Forza Italia led coalition, the PD and the Five Star Movement.

In particular, an electoral win by the Five Star Movement could imperil many of the European Union’s ongoing grand projects. The rationale behind this is that several proposed projects, such as the proposed European Monetary Fund & European investment budget / EU budget minister, are the antithesis of the M5S’s anti-euro, pro-Russian stance. Therefore, if the M5S were to enter government, they could arguably torpedo many, if not all, of French President Emmanuel Macron’s ambitious projects for Europe. Furthermore, M5S, as well as the pro-Russian elements within Berlusconi’s coalition, could weaken the EU’s sanctions regime against Russia by rejecting any imposition of fresh sanctions as well as creating new divisions in the EU akin to that between Brussels and the respective capitals of Warsaw and Budapest. The Five Star Movement has already proven its capabilities by playing a key role by contributing to not only the failure of Renzi’s constitutional referendum, but also the collapse of his government, which culminated in his resignation. Furthermore, the prospect of a targeted disinformation campaign by foreign forces could tilt the scale in the Five Star’s favor, dealing the European project its greatest setback to date.

With the prospects for a majority, centrist government quickly fading, Italy looks to be facing a hung parliament from any of the three political factions – not the outcome that Europe is hoping for.