March 4 could bring two new sources of uncertainty and potential instability for the EU. Italy is voting that day in its first general elections for five years. Meanwhile in Germany, the results are also due from the postal vote by the Social Democratic Party’s membership on whether to approve the terms of a new “grand coalition” with Angela Merkel’s centre-right parties.
Either or both votes could bring the threat of new elections or even, in Italy’s case, a eurosceptic party coming into government. Or perhaps both Germany and Italy will simply muddle through, as they have generally done in recent years. Whatever happens, however, one thing is clear: thanks to Brexit, Britain will have next to no influence over policy-making in the wake of these events during this year. And if we are foolish enough to go ahead with Brexit in March 2019, our influence will drop from negligible to zero.
Italy’s election carries bigger potential impacts and risks than does the German coalition vote, though we should not underestimate the danger that new elections in Germany could bring a further increase in the power and influence of the far-right Alternative for Germany. But Italy’s version of AfD, the Northern League, stands a much greater chance of entering government than do the Germans.
Eurosceptics tone it down
It is often said that euroscepticism and direct hostility to the euro are strong and rising in Italy, but this is wrong. Actually, all parties have learned from the failure in France of Marine Le Pen’s euro-hostile Front National and have toned down their attacks on the single currency for fear of scaring Italian savers. With a fragile banking system, no one dares risk playing with financial fire.
The party that leads in the opinion polls, the anti-establishment Five Star Movement, has dropped altogether its call for a referendum on euro membership, while both the Northern League and its centre-right ally, Silvio Berlusconi’s Forza Italia, have dropped proposals to introduce a parallel currency.
Instead, the real hostility is to the fiscal pact that has governed the euro since 2012. If either Northern League or Five Star were to attain a dominant role in government after March 4, they would likely roil bond markets by making immediate plans to break the country’s commitments on keeping its budget deficit below 3% of GDP.
Moreover, the Northern League – a party founded on separatist plans for northern Italy, but which is now seeking nationwide support by stressing “League” rather than “North” – has as its real target immigration rather than the single currency. Its hostility is mainly to refugees and economic migrants from across the Mediterranean rather than to immigrants from other EU countries.
How will the votes fall?
But what are the prospects that either of these parties will make it into power? The country’s electoral system, which under a new law elects two-thirds of seats by proportional representation and one-third in first past the post single member constituencies, means that a party or alliance cannot win an absolute majority in Parliament without achieving 40% of the vote, or thereabouts.
In the latest surveys, published before Italy began its 15-day pre-election ban on new polls, Five Star was on around 26-28% and Northern League on just below 15%. Northern League is in a formal electoral alliance with Forza Italia and a small right-wing group, Brothers of Italy, which together are scoring 36-37%. Unless a late surge from among the large group of “don’t knows” pushes the centre-right up to an absolute majority, the likeliest outcome is months of horse-trading to form some sort of grand coalition.
There are two outlier possibilities. One is that Five Star do well enough to force the Italian president to give them the first chance to form a government, which they say they would seek to do as a minority administration buttressed by policy-by-policy deals with other parties. That could open the way to a partial alliance with Northern League to put tighter controls on immigration, for example.
The other outlier is that the centre-right not only wins a majority, but that within the alliance the Northern League unexpectedly manages to pull ahead of Silvio Berlusconi and thus wins the right to choose the prime minister and even the finance minister. That would be the scariest outcome for markets, for the League would be the government likeliest to try an experimental approach to fiscal policy.
We’ll find out on March 5. If an extreme outcome occurs, it could affect financial markets, migration policy and even defence and security policy. But so be it: Britain will be unable to influence how things proceed. It will be a helpless bystander.
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Edited by Luke Lythgoe
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