Renzi Resurgence: Political Prospects for Italy

WEAK GROWTH 

Renzi entered office in 2014 with an approval rating of over 70 percent, according to public opinion polls. However, within a year his favourability had dropped to 35 percent. This decline in popularity was, in part, due to continued economic stagnation in the country. Burdened by overly-indebted banks, high regulation and weak productivity, Italy has struggled, despite being the Eurozone’s third-largest economy. Recent reports have shown that Italy has been one of the main ‘losers’ of the Eurozone project; over 18 years, the country’s GDP per capita declined by 0.4 percent, worse than Greece overall. Moreover, according to Bloomberg data, the country’s GDP expanded by 6.2 percent, but the population grew at 6.6 percent, highlighting the shortfall in economic growth over this period. In comparison, Germany has enjoyed 26.1 percent economic growth since 1998. Such poor growth culminated in the European Union (EU)’s decision to censure Italy for its large budget deficit of 132.8 percent in 2016 and has increased scepticism over the Eurozone project. 

BANKING CRISIS 

The mishandling of an ongoing banking crisis further contributed to Renzi’s defeat. Italy’s banking sector is in a precarious position, requiring significant bailouts as a result of non-performing loans. While there is currently EUR 360 billion in impaired loans in the Italian banking system, there is only EUR 225 billion equity on the books. Moreover, in late February, Italy’s parliament approved a EUR 20 billion bank bailout fund and one of Italy’s largest and oldest banks, Monte dei Paschi di Siena, is now in line for a EUR 5 billion bailout. However, EU laws prohibit member states from bailing out struggling banks without the companies’ bondholders incurring some losses, otherwise known as a ‘bail-in’. This policy is extremely unpopular among Italian banking clients, as it could result in significant losses. These concerns, coupled with weak economic growth, have prompted many Italians to look to populist, Eurosceptic parties, as they feel that EU rules are more constraining than stabilising. 

POLITICAL IMPASSE

Renzi’s downfall was also a result of his proposals for constitutional reforms to streamline law-making processes. These included reducing the power of the Senate to allow legislation to be passed more quickly by the Chamber of Deputies. However, the reforms were widely panned as poorly drafted and confusing for Italians and were deemed to give the incumbent PD government too much power. Even within PD ranks, there was limited support for the reforms. Leftists within the PD accused Renzi of pandering to business interests while ignoring the daily struggles of ordinary Italians. Thus, while Renzi was elected on a ticket promoting sweeping reform for Italy, his tenure became increasingly ineffective as a result of intra-party divisions, as well as a weak government. With 60 percent of the electorate voting against the reforms in the referendum, it is clear that the public distrusted Renzi’s vision for change.

EARLY ELECTIONS

Despite these failures, Renzi appears to be preparing for a political comeback. On 19 February, he resigned as the head of the PD, a move which will push his party to hold a new leadership election during its congress in April or May. Although some members of the PD have threatened to revolt if Renzi is re-elected, he is still likely to win back control of the party: polls indicate that 58 percent of PD voters support Renzi. Should Renzi win the PD election, he is likely to ask Italian President Sergio Mattarella – a trusted ally – to call for a general election as early as June to reassert control of the government. However, PD dissidents and several senior figures in the party oppose an early election, particularly given current support for Eurosceptic parties after the referendum. Some members of the PD also want the party to spend time regrouping, and reorient the party’s agenda towards more leftist values. Nonetheless, early elections have become even more likely after Italy’s constitutional court revoked an electoral policy on 25 January that placed the country’s lower house and senate at odds in terms of voting systems. President Mattarella had previously stated that he would not call early elections unless the policy was scrapped.

ELECTION OUTCOME SCENARIOS 

An early election is expected to play out between the PD and M5S. According to an Ipsos poll released in late February, M5S enjoyed 30.9 percent popular support, while the PD had 30.1 percent support. Behind these two parties are the far-right Lega Nord per l’Indipendenza della Padania (Northern League) and former Prime Minister Silvio Berlusconi’s populist Forza Italia, each with 12.8 and 13 percent support in opinion polls. If dissident PD members leave to start their own party, they are expected to receive between four and six percent of the vote only. Opinion polls suggest that in the event of a snap election, no party will win the 40 percent threshold required to form an automatic majority in parliament’s lower house. If M5S comes out as the largest party, it would only be able to lead government in a coalition with other parties. However, given that M5S has been intransigent when engaging with other political parties in an effort to reinforce its anti-establishment image, coalition building is likely to prove difficult. A more likely outcome of a snap election would be a coalition government led by the PD in alliance with other centrist parties and Forza Italia. In the worst case scenario, no party or group of parties will reach the 40 percent threshold, resulting in a hung parliament, and yet another round of voting. As 2017 proceeds, Italy faces decisions that could have a major impact on its political and economic future. If populism wins in an early election under the M5S, the result would provide greater surge to the wave of anti-establishment sentiment permeating Europe. Moreover, the likely resultant referendum on EU membership would add another blow to the EU project of developing an ‘ever greater union’.