The recent regional elections in Abruzzo and Sardinia have highlighted the contrasting political fortunes of the two populist parties that make up Italy’s coalition government.
Lega, the populist right party, made significant gains in both regions, demonstrating it enjoys popular support beyond its traditional strongholds in the North. The Five Star Movement (M5S), the left-populist party, suffered significant setbacks in both elections. These results are likely to tempt Lega to trigger an early general election to capitalize on the widespread support it currently enjoys. Increased political instability might increase government borrowing costs and decrease business confidence. This, in turn, is likely to worsen the economic outlook in the medium term.
Italy: Centre of Europe’s populist surge
Italy has the been ground zero of the populist surge in Europe ever since last year’s general election led to the creation of a populist coalition government comprised of the left- wing Five Star movement (MS5) and its right-wing counterpart, Lega. However, the parties have experienced widely different political trajectories ever since. Lega, led by the firebrand Matteo Salvini, has seen its popularity surge. Its relentless focus on its anti-EU and anti-immigration platform has resonated with voters looking for explanations to account for the country’s economic malaise.
On the other hand, the MS5, led by Luigi Di Maio, has suffered a dramatic fall in support. Its decision to form a coalition government with right-wing populists alienated some of the party’s left wing. Di Maio’s decision to protect Salvini from prosecution after he refused safe harbour to a migrant ship dented the party’s central selling point that it was not part of the political establishment. The contrasting political fortunes of the two parties were reinforced last month as voters went to the polls in the Southern regions of Abruzzo and Sardinia.
Italian centre-right and left-wing
Centre-right coalitions swept to power in both regions. Lega, a constituent part of the right coalition, performed well too, chalking up 27.5 % of the vote in Abruzzo and 11% in Sardinia. This is especially significant because Lega did not even run candidates in these regions five years ago. Historically, its campaigns to salvage greater autonomy for the North made this region a political stronghold. Lega struggled to gain a foothold outside of it; however, these election results indicate a widening of its support beyond the traditional pockets.
Meanwhile, M5S performed poorly in both regions. It could muster only 20% of the popular vote in Abruzzo and 11% in Sardinia after managing to secure approximately 40% of the popular vote in both regions in the general election last year. This spectacular collapse in popularity underscores the contrasting political fortunes of the two parties in government since last year. These latest regional election results are therefore likely to have widespread consequences on the political and economic landscape in Italy over the medium term.
Consequences of the regional election results
The inroads that Lega has made in the southern regions of Italy is likely to tempt its leader, Matteo Salvini, to trigger an early election in the latter half of this year. This is most likely to happen after the EU elections in May, where the party is likely to enjoy further electoral success. It is clear that its strategy of repeatedly emphasizing its anti-immigration platform is still paying electoral dividends. It won 17% of the vote in the general election last year but is now polling at approximately 32%. Meanwhile, M5S’s support is imploding. In this scenario, any policy differences in government are likely to provoke Salvini to opt for an early general election in order to take advantage of his party’s popularity and possibly propel it to becoming the largest party in government.
There has certainly not been a shortage of disagreements between the coalition’s partners. M5S is officially against the TAV high-speed rail project between France and Italy while Lega has repeatedly expressed its enthusiasm for the project. Meanwhile, Chinese infrastructure investment has proved to be another flashpoint. The combination of these policy disputes and the stunning growth of Lega’s popularity and the concurrent implosion of M5S means that the conditions are just right for Salvini to trigger an early election later this year, using one of the several contentious policy issues as a pretext to doing so.
Economic risk outlook
Figures published earlier this year highlighted that Italy’s economy fell into a recession in the second half of last year, shrinking in two consecutive quarters. This was largely because of the standoff with the EU over the government’s spending plans which breached the EU’s budget deficit rules. An early general election and the political uncertainty that it would engender is highly likely to have a similar effect. Investors are already looking closely at Italy’s weak fiscal position and are worried about the stagnant economy.
Therefore, another bout of political instability is likely to increase government borrowing costs, tighten credit growth and dampen business sentiment. Given the precariousness of the Italian economy and the government’s fiscal position, a general election is only likely to prolong the economic slump. However, the weak economy is unlikely to deter Lega from triggering a general election to capitalise on its popularity, especially after its encouraging performance in the regional elections last month.
