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Mapping Italy: scenario and political risks (July 2020)

Luiss School of Government offer a monthly report on Italy that provides an interpretation of the country’s recent political events, and makes an educated guess about what happens next. Here we publish an excerpt from the July 2020 issue, in collaboration with Luiss School of Political European Economy and Luiss CISE (Centro Italiano Studi Elettorali).

 

The political path forward for Giuseppe Conte is getting narrower. If the States General for the economy have helped the government get through the summer, many political and economic problems will arise for Conte in the autumn, when it will be necessary to decide on the 2021 budget.

In Parliament, the signs are clear, there is an increasingly clear convergence between a faction of the 5 Star Movement and the League, on both fiscal policy and the relationship with Europe. A scenario that depends on two factors: first the weakness of the Five-Star leadership and the lack of trust of part of the Movement in the moderate transformation imposed by Grillo and Giuseppe Conte and by the alliance with the PD; second the need for the League leader Salvini to free himself from opposition.

The breaking point in the government majority might be the Five Star Movement. Not only due to the increasingly evident division into different factions, but due to what the Movement’s parliamentarians will soon have to face: irrelevance at the territorial level (they have no hope of governing the Regions); further confirmation of the drop in consensus in the regional elections in October; a very likely “blood, sweat and tears” budget law owing to the worsening GDP estimates; the probable need for the government to resort to the ESM, which will be the death knell for the Eurosceptic, anti-establishment posture of the Movement.

At that point, the dissatisfied parliamentarians will make a simple calculation, elections remain unlikely both due to uncertainties on the health front and due to the relative majorities in Parliament and, in any case, in the case of both early or distant elections, the 2018 result remains unrepeatable for the 5 Star Movement. In other words, many know that they have no hope of being re-elected and, at the same time, that the legislature is unlikely to end before 2022. Consequently, the Five Star parliamentarians could begin to look for a new political home, where it would be possible to be re-elected in the next general election.

In this context, Salvini has played his cards, aware both of the League’s attraction for the grillini (Five Star members) and of the numbers in the Senate that are not very reassuring for the majority (now the majority there is +5 seats). Moreover, the League’s strategy is to ensure that this majority does not choose the next President of the Republic. And everyone knows, as a note of uneasiness in Matteo Renzi’s most recent interviews reveals, that in this legislature there has already been another majority (League and Five Star Movement). A problem for the centre-left, which aims to activate the ESM and bring its own preferred candidate to the Quirinale (or, possibly, to reconfirm Mattarella).

Berlusconi is back in town. The tycoon is deploying his strategy, positioning Forza Italia between the majority and the opposition. There are rumors in Rome around Berlusconi’s ideas and many analysts bet on Forza Italia joining the majority, particularly if the Five Star Movement splits in the next few months. However, in all likelihood, Berlusconi’s strategy is more subtle. He knows that his party cannot break with its right-wing allies Salvini and Meloni and that, consequently, Forza Italia cannot join the majority. But, in the meantime, Berlusconi’s party is still part of the EPP in Brussels, and he does not want to disappoint his European fellows. In this scenario, Forza Italia might help the majority occasionally, perhaps voting in favour of the ESM programme, where the Government would not have enough votes in Parliament owing to the defection of the radical factions of the Five Star Movement. This position would be profitable for Forza Italia: the tycoon would regain political centrality, he could be the swing vote for the election of the new President of the Republic, but without renouncing the right-wing alliance at local and national level.

Di Maio’s game. Until a few weeks ago, Di Maio was considered a second-division leader, exhausted by the political leadership of the Five Star Movement and overshadowed by the Prime Minister. However, in the Five Star leadership void, the Minister for Foreign Affairs still has some cards to play. He still has some grasp over the Five Star parliamentary groups and he could influence the opinion of dozens of MPs disappointed by the government. In his position, Di Maio has every interest in breaking the link between the 5 Star Movement and the Prime Minister, because control of the party, or at least part of it, is the only asset he has for his political future. Giuseppe Conte is a problem for Di Maio, in terms of both leadership and alliances. While Di Maio is arguing for an independent Movement, open to multiple alliances, the Prime Minister is working for tighter cooperation with the Democratic Party at national and local level. If this scenario came true, Conte would become the next natural leader of the Five Star Movement. However, Di Maio’s potential to veto cannot be ignored: with a weak executive and a precarious majority, controlling a portion of the Five Star Movement means having the capacity to notably influence the government. In recent weeks, Di Maio met the former President of the ECB Mario Draghi. A sign that the Five Star Movement’s former frontman is not excluding a new government without Giuseppe Conte as a future option.

The results of the EUCO’s recovery package. Prime Minister Conte has obtained mixed results from the European Council meeting, which established the European stimulus package for the recovery of the economy after the pandemic. In the initial phase, Conte aimed to obtain more grants than loans, but the final agreement reformulated the compromise among member States, increasing loans at the expense of grants. Moreover, the Italian government was looking for a lower level of conditionality on reform plans, but the main European tool, the Recovery Fund, will have enhanced conditionalities and governance: it binds every country to respect European semester recommendations; it introduces a “Super emergency brake” mechanism, which allows a single member-State to block aid tranches to another Member-state by bringing the case to the European Council, which will decide by consensus (unanimity) on the reform plans of the country under scrutiny.

Now Conte has to convince his majority, and even more the Italian citizens, that Italy is no more a “special observed” in Bruxelles and that the government has negotiated successfully. Italy should get around 80 billion grants and 120 billion loans, a result which is not the best for the government but is not too far from the initial target, either. In the end, considering the difficulties of the European negotiations, if these numbers are confirmed, Conte will have achieved a remarkable political result. Another positive achievement for Conte is the possibility to have an immediate access to the European funds, anticipating them already in the next budget law. During the negotiations, the Prime Minister was criticized by the media and the opposition because Italy was the only country that had not presented reform plans. Now for Conte the time has come to design priorities, policies and reforms to spend the European aids. Most of his political ability will be tested in the next months: he should convince parties in the majority to avoid clientelistic and unproductive spending and he should gain credibility with both the EU and financial markets. It will be no easy task for the Prime Minister, considering the divisions within the majority and the slowness in embracing structural reforms showed by the executive until this moment. But in political terms, if properly handled, the European agreement might act as a propellent or, at least, as a stabilizer for Conte 2.

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