Thursday, 3 January 2013

Who's Who, and What Will Happen at the Italian Election?

Members of the Eurogroup have been progressively implementing the necessary reforms and providing the required amount of conditional aid to ensure that the Eurozone retains some semblance economic stability and credibility allowing it to remain an attractive destination for investors. All the good work born from numerous late night meetings in Brussels and endless phone calls between the various Ministers and Heads of Government have all been thrown into chaos with the withdrawal of support of former Italian Prime Minister Mario Monti’s technocratic government by ex-PM Silvio Berlusconi.

Like most other continental European parliaments, the Italian Camera dei Deputati contains numerous smaller parties – none truly large enough to govern in their own right, who are required to form coalition governments in order to be given a formal mandate to govern by the President of the Republic.

With elections scheduled for the 24th of February 2013, there are four political parties which will constitute the bulk of any future government. For the larger parties, their respective platforms will help decide who leads the next government whilst the electoral performances of the smaller parties will determine the quality and quantity of ministerial portfolios they are allocated in any coalition.

To better understand the current situation I have provided below a summary of the four parties which will feature prominently in the upcoming election, their leaders, policies, and any potential setbacks they may incur.

Silvio Berlusconi’s centre-right Popolo della Libertà (PdL) withdrew support for the technocratic government before its unofficial mid-February date of resignation bringing about the current early election. This date had been agreed upon via a gentleman’s agreement between the leaders of the major parties. The PdL which has been described by commentators in Europe as nothing more than Silvio Berlusconi’s personal political party, benefits greatly from the use of his media empire through both the print and television mediums.

The PdL has used data provided by the Mediaset (media company controlled by Silvio Berlusconi and his family) daily opinion polls on the publics government satisfaction to implement or change plans of action. PdL advisors decided that with government disapproval levels at approximately 61%, it was the most opportune time to withdraw support for Monti and launch an electoral campaign.

Whilst appearing on one of the RAI (Italian public broadcaster’s) channels current affairs programmes, Berlusconi stated that the gloomy economic situation Italy was facing when he left office was not due to bad economic management on his part, but rather due to investment banks selling large quantities of their Greek and Italian bonds at the one time. He has claimed that he will reverse most if not all of Monti’s reforms, including property tax. When quizzed about how he would then recoup the lost revenue, he simply said that he would implement a “minor increase” in tax paid on beer and spirits.

The PdL also has to deal with the negative consequences brought about by Berlusconi’s private life. Events such as “Bunga Bunga” parties, the soliciting of prostitutes, and the “Ruby the Heartstealer” scandal have earnt him the ire of voters in traditionally conservative, catholic Italy and this will potentially alienate the party from older voters. These older voters normally constitute a large portion of the PdL’s electoral base. Much like the relationship between the French and their former French President Nicolas Sarkozy, Italian voters do not want a “Hollywood” Prime Minister at such a crucial time.

Critics of Berlusconi have said that the only reason he is running for the Prime Ministership again is because his Mediaset company needs money. This is primarily due to falling revenue brought about by a decline advertising space bring purchased. This is due to two primary factors - the European economic crisis, and that they do not have the rights to broadcast Italian professional football (soccer) matches. It is understood by people in the Italian business community that if companies invest significant amounts of advertising revenue with Mediaset, they will then gain preferential access to the Prime Minister and Ministers, and could be potentially be awarded government contracts.

The right-wing and regional autonomy orientated Lega Nord has traditionally been a major coalition partner with Silvio Berlusconi’s party (whichever name it is running under at the time), providing the coalition with the second largest amount of Deputies. An important development which has occurred recently has been a change within the Party’s internal hierarchy with founder Umberto Bossi being forced into retirement. This has occurred following recent scandals involving Bossi himself, the then treasurer Francesco Belsito, and members of the so called “Magic Circle”.

Replacing Bossi as head of the Lega Nord has been Roberto Maroni. Maroni, although seen as a Bossi disciple, has differenced himself following Berlusconi’s announcement that he intends to run for office again. He has come out and stated that the Lega will continue to support the PdL but not with Berlusconi at its helm. Maroni and the Lega see Berlusconi’s antics in both the public and private sphere, and his instability, as detrimental to their electoral goals. By aligning themselves with him, the Lega believe that there will be a significant enough voter backlash that they could loose representation in the Camera from normally safe areas such as Venice and Lombardy. By opposing Berlusconi, Maroni believes that disgruntled voters who would normally vote for the PdL will instead cast their ballots for the Lega therefore giving them a larger presence in Rome.

Berlusconi has done himself and the PdL no favours by announcing soon after Maroni declared that the Lega would not support the PdL, that the PdL would in turn not support the Lega in the next Regional elections. These elections are very important for the Lega as it works in unison with their aim of regional autonomy. On a personal level, Maroni does not take kindly to threats. He will more likely than not direct the Lega to campaign heavily against the PdL at the next Regional elections, trying to oust current PdL members whom they did not previously campaign against.

Then Unione di Centro (UDC) is the centrist party headed by Pier Ferdinanando Casini had kept their intentions for the upcoming election to themselves until recently. It was not known whether Casini would run himself for the Prime Ministership or align himself with Berlusconi’s PdL. What was occurring during this period of public speculation was the UDC’s courting of current Technocratic Prime Minister Mario Monti to run for Prime Minister. He would therefore attempt to gain a democratic mandate to govern in his own right as a part of the UDC. Although this is something that financial markets and European leaders wish would happen, in reality is quite unlikely.

The reforms that Monti’s technocratic government has managed to implement will be of benefit to Italy (so long as they are not repealed) in the long term, unfortunately, there will be some short term pain. Some taxes have had to be raised and payments frozen, as well as a downsizing of the overstaffed and under performing civil service. This has lead to Monti having a disapproval rating of above 60% which will dampen any chance of Monti becoming PM. What I do believe to be a more probable outcome, is that the UDC will receive enough seats the Italian Camera and remain independent. They would then negotiate with the governing party of the day and support or oppose legislation as it is proposed.

Although it is unlikely that the UDC will join any center-left coalition continuing its preference for center-right coalitions, the clash of personalities between Casini and Berlusconi will mean that it is doubtful that they will join any coalition government involving Berlusconi. For them to do so though, they will demand Cabinet representation with the role of Finance Minister being the least they will accept.

The centre-left Partito Democratico (PD) headed by Pier Luigi Bersani appears to be the group most likely to lead any government post the February elections. In news that was greeted with both contentment and caution from global financial markets, Bersani has declared that if elected, he will continue with the reforms set-out by Mario Monti. Although he does agree that reforms of the Italian economy are essential, European leaders are predictably concerned as Bersani is from somewhat of the same school of thought as his Socialist counterpart in France РFran̤ois Hollande, as he is more in favour of growth policies as opposed to pure austerity.

By mentioning his preference to a combination of both growth and austerity measures as opposed to pure “Teutonic austerity”, Bersani is attempting to walk the fine line between electoral victory at home and European assistance internationally.

Voters in the country’s South would respond more favourably to growth measures compared with those in the more economically developed North. This is because these types of policies will potentially reduce the chance of welfare and pension payments being cut. Residents of the Sicily, Basilicata, Campania, and Calabria would be most receptive to this as many are heavily reliant on government assistance. Companies in the more industrialised North would also be in favour of any growth measures as it would give consumers especially in Regions such as Friuli Venezia Giulia, Piedmont, Lombardy, Emilia Romagna and Tuscany more disposable income to spend on their goods and services. This is just simple economics.

European decision makers (in reality those countries who currently hold a Triple-A credit rating) would still be cautious of the desire for growth measures to be implemented by any Bersani government. They are aware though that Bersani fully understands that he needs to follow their advice so to be eligible for any emergency European funding and support. Conversely, the European power-brokers understand that by announcing that growth policies will play a major part in the party’s electoral platform, this is simply a means of gaining votes. And as we know with politics, it is not uncommon for politicians to change their minds and break election promises.

If the PdL was serious and wished to lead a governing coalition again, it would be commonsensical for Silvio Berlusconi to resign as Party President. This would then insure support from the UDC and Lega – both of whom are now anti Berlusconi and not necessarily PdL.

It is my belief that if the current political situation in Italy does not change, a coalition of centre-left and leftist parties will form a government with Pier Luigi Bersani becoming the next Prime Minister. For the Eurogroup and financial markets, this is the best result possible with the exception of Mario Monti somehow being named Prime Minister.

I would also expect that there would be a rally on the Milan bourse primarily in the stocks which compose the FTSE MIB 40 as investor confidence will return bringing with it capital which had previously been withdrawn from the market due to a lack of investor confidence in the wider Italian political system and economy. Italian government bond yields would also fall as the broader financial markets would have faith that the currently implemented reforms would not be repealed and the path set by Monti continued to be followed. With Europe’s third largest economy hopefully stabilised following the election, Brussels can then focus on shoring-up Spain, Portugal and Greece.

Let us hope that on the 24th of February, Italian voters have their country’s long term future and not short term personal gain in mind when casting their ballots.

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