The Italian Elections: Part II

In Part I of this report we outlined the geopolitics of Italy and its political economy. This week, we continue the report with an analysis of the upcoming elections and Germany’s impact on the EU, concluding with potential market ramifications.

The Election
There are four major parties in Italy. Below we detail each party, its current support in the polls and major policy positions.

Five-Star Movement
Current Polling: 28.0%
Alignment: The Five-Star movement is not currently part of a coalition and has indicated it won’t join one.
Policy Positions: This party would be best described as left-wing populist. Since inception, the Five-Star Movement has been a Eurosceptic party and has threatened to exit the Eurozone. However, leaders have recently backed away from that position as Italians, while unhappy with the euro, are not committed to the disruption that leaving would entail. Instead, this party wants to see the EU fiscal compact abolished and wants Italy to run high deficits to boost growth. It has also called for universal income for low income households.

Democratic Party
Current polling: 22.1%
Alignment: The Democratic Party is a center-left establishment party. It makes up the majority of a coalition of four other parties that have very little support.
Policy Positions: This party is the least Eurosceptic of the major parties, but it wants a revision to the EU fiscal compact.

Forza Italia
Current Polling: 18.3%
Alignment: Forza Italia is part of a right-wing alignment of three other parties, including the Northern League (see below), which is polling at 39.3% as a group.
Policy Positions: Forza Italia is a center-right establishment party but is led by the controversial Silvio Berlusconi, who often portrays himself as a populist. He is calling for lower taxes, labor market liberalization and tighter immigration controls. Their position on the single currency is that it has been bad for Italy but the country cannot exit it.

Northern League
Current Polling: 13.2%
Alignment: The Northern League is part of the center-right coalition, led by Forza Italia.
Policy Positions: With its base in the northern part of Italy, the Northern League is a right-wing populist party. It wants lower taxes, a smaller federal government and a referendum on remaining in the Eurozone.

At present, neither the center-left nor center-right coalition commands a majority. The Five-Star Movement could link up with either the center-left or center-right and form a government but, to date, has shown no interest in actually governing. Italy has a mixed system of voting; 37% of seats are determined by simple majorities (“first past the post”), with the remaining seats selected by proportional representation.[1] Because of this system, it is difficult to translate polling numbers into securing seats. The consensus is that the vote will be a hung parliament and the current PM Paolo Gentiloni will remain in power during the process of building a coalition or until new elections take place. However, there is some speculation that preference falsification[2] may be underestimating the center-right coalition’s support. Additionally, if the Five-Star Movement were to join with another party, it could team up with the populist Northern League.[3]