How Italy’s political drama forced an election

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Italy is never far from a political crisis. But the elections scheduled for September 25 will be exceptional even by Italian standards, where 67 governments have succeeded each other since World War II. Europeans are grappling with an energy crisis and fear that higher interest rates will spark panic over heavily indebted countries like Italy. Then there’s the likely rise of right-wing anti-immigration parties in Italy and the exit of Prime Minister Mario Draghi, the former central banker who was seen as a steady hand, leaving investors to worry about what’s next.

1. What is unusual about this election?

It is the first fall in the country’s history, a time when Parliament is busy drafting the budget law for the following year. The campaign is compressed into two months. It will also be the first time that Italy has voted to elect a parliament with a reduced number of lawmakers, making the competition to win a seat as aggressive as ever. Draghi resigned after the broad coalition he had led since early 2021 dissolved and three of his main allies withdrew their support. A skilled technocrat who navigated the country through an inflationary crisis, Draghi is widely credited with saving the euro when he was head of the European Central Bank.

2. What led to this?

The crisis was initially sparked by the Five Star Movement, the anti-establishment group that came to power in 2018 and criticized Rome’s military support for Ukraine. This snowballed into a dramatic series of political moves as Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia sensed the political opportunity for new elections, pulling out of the coalition and leading Draghi to resign. Other issues driving the split were how to allocate financial support to Italians hit by rising prices, how to push through reforms to free Italy from bureaucracy and boost competition, and changes aimed at making the tax system fairer – all topics are likely to drive the campaign.

Although Draghi will remain in office until a new government takes power, his powers have been curtailed. His government will still have the capacity to implement key reforms to unlock around 200 billion euros ($204 billion) in aid from the European Union and to represent Italy at international events, but his authority as a figurehead of Europe’s response to Russia’s war in Ukraine has been held back. Draghi’s government will not be able to pass nonessential new laws and make new appointments for state-controlled companies except those strictly necessary. Over the next few weeks, the Italian political scene will be dominated by parties presenting their campaigns and deciding who they will team up with for the vote.

4. Who is likely to win?

Right-wing parties have the most to gain, and this is also the reason why they were quick to take advantage of the crisis triggered by Five Star. Based on current polls, a right-wing coalition should win the most seats, provided its members can stick together. The coalition includes Giorgia Meloni’s Brothers of Italy, as well as the League and Forza Italia, which until recently were part of Draghi’s government. Current Italian electoral law, or legge Rosato, favors parties running together, and party leaders work out which alliances to favor based on cross-vetoes. While the right-wing coalition is clearly defined, it is more difficult to predict how the teams will form in the center where a myriad of small antagonistic groups have formed. The Democratic Party is currently against association with Five Star, even though they share a government.

5. What does this mean for Europe?

The weakness and indebtedness of the euro zone’s third economy risk becoming the problem of all the others. Until early July, Draghi’s coalition had managed to balance the growth of the economy after the pandemic and reduce the gigantic debt of Italy, the largest in the euro zone to around one and a half times the domestic product. raw. Italy’s drama comes as the ECB tightens monetary policy and raises interest rates, raising fears of a recession in countries that use the common currency. Tensions rose after the yield on Italy’s 10-year government bonds rose above 4% in June, the highest since 2014. Rising interest rates raise questions about the long-term sustainability of the burden of Italian debt in a context of economic stagnation and population decline.

6. Why are the governments so unstable in Italy anyway?

Most political analysts date the current era to 1994, when, following a series of scandals, Berlusconi came to power and with him the current system of political parties. The combination of weak parties associated with a single, charismatic leader and his success, along with electoral laws that force them to form broad, uneasy alliances that often break down, is a recipe for political instability. This is likely to happen again in the next election.

• Here is a guide to the electoral landscape at the start of the campaign.

• Draghi saved the euro, but Italian politics beat him.

• A Bloomberg Economics report on risks from Italy.

• Why a crisis in Italy upsets the euro.

• Related QuickTakes on European bond market fragmentation, Europe’s energy crisis, and the 2012 euro crisis. A 2018 explainer on the rise of the five-star movement.

• Rachel Sanderson of Bloomberg Opinion explains how Draghi left his mark.

• Italy’s divisions are exposed by the war in Ukraine.

• Here’s why Italy doesn’t usually hold elections in summer or fall.

More stories like this are available at bloomberg.com