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Italian political scene after the Sicilian regional election

It was a sort of earthquake, not for the result, which was expected, but for the underlying numbers: the centre-right coalition candidate won by a relatively slim margin over the M5S candidate (39% to 35%). What was unexpected was the extent of the defeat suffered by the parties on the left, whose two candidates in the election garnered just 19% and 6% (the governmental PD candidate and the leftish parties’ one, respectively).

This was a regional election, and so it has no real consequences per se, but Sicily is a big region in demographic terms (5.06 million inhabitants, 8.4% of the total population) and used to be one of the places where the previous elections were decided by a large number of swing voters. This time turnout was very low (less than half of the 4.6 million potential voters actually went to the polls).

The clear winner of the day was the centre-right (still), led by Berlusconi, which is gaining momentum in the polls and could gain more after this success; in terms of percentages obtained, M5S is also a winner. The clear loser is the PD, which came in a distant third, and its leader, Mr. Renzi who did not manage to keep the party united and who was also unable to negotiate a single, joint candidate with the leftish parties. With national polls suggesting until now that the competition would be between the PD and M5S, the Sicilian result showed a very different possibility. This clearly calls for an overhaul of the PD’s political strategy and opens up the possibility, in order to organise a full coalition on the left, of Renzi himself stepping back and suggesting a different candidate for the general elections. General elections will likely take place in the second half of March. The bulk of the remaining items that should be approved by the current Parliament will likely be completed by the end of the year. The most relevant is the budget law, which has already been drawn up and submitted to the EU Commission. Then there are other issues that have fewer economic implications but that are tough to tackle politically, among them a law concerning citizenship for second-generation immigrants. Hence, there is no need to stretch the election deadline to the limit (that is May 2018).

What is at stake? Abstaining from any kind of political judgment, there are two parameters that will impact any assessment on Italy for the incoming electoral competition. The first is the continuity of economic policy: it is undeniable that the Italian economy is improving (as witnessed also by the recent upgrade by S&P), and these improvements are not only cyclical but, at least to a certain extent, also structural. The second is the relationship with Europe and the need for Italy to maintain an economic policy approach that is compliant with European rules (in particular with the debt rule).

On the first dimension, continuity could be preserved if the PD recovers and manages to keep a relative majority or, in any case if it is involved in a grand coalition style government. However, some sort of continuity will also be maintained with a centre-right government: in fact, it is hard to think that it would undo the measures aiming at enhancing flexibility in the country.

The true question is the one of the relationship with the European rules. According to the recent remarks sent by the Commission to the Italian government, any departure from the rules (a downward correction in deficit of 0.5% per year until a balanced budget is reached and a “visible” reduction in debt/GDP ratio*) should be negotiated under the flexibility allowed by the fiscal compact and strictly monitored by the Commission and the Eurogroup. Currently, the relationship is based on substantial trust. It seems clear that this trust could evaporate if a new Italian government were to start putting in doubt rules, approaches and policies. On that, both the Lega Nord (part of the centre-right) and M5S are quite vocal against European policies. However, the recently approved new electoral law will make it difficult for any of the three groups to have enough votes to govern alone. Compromises and grand coalitions will naturally lean towards continuity, particularly if the economy is performing nicely.

2017-11-10-italian goverment projection graphe

*Actually, the rule would require a decline in debt/GDP that would bring the ratio to 60% in 20 years, but its strict application is questionable in a period of low inflation. Nonetheless at least a clear declining trend is requested

BRASILI Andrea , Senior Economist
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Italian political scene after the Sicilian regional election
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