General Election 2018: Italy is set for a bumpy ride

In a posh Italian cafe in Kensington, one of the young waiters (let’s call him Lorenzo) works every hour of the day  to send money to the family he left behind on the Amalfi coast of Italy. 

Over coffee, Lorenzo told me how he came to London a year ago to find work because his 57-year-old father had lost his job as a carpenter. He has been searching for work ever since yet, even with his small state benefits, he struggles to feed his family.

So Lorenzo, who had wanted to study engineering, upped sticks, came to stay with friends in a tiny flat, and has been holding down waiting jobs ever since. How he manages to save anything with London prices is a mystery, but he spends nothing on himself, eating as much as he can from the cafe.  

The 23-year-old is not going to bother voting in Italy’s elections being held next Sunday (March 4th) as “the parties are all the same,” he says, softly. “They are all corrupt, even the new ones like the Movimento 5 Stelle ( the Five Star movement.) None of them care about people like us.”

It’s poverty and unemployment, he says, not immigration or the EU, which is the seriously divisive issue feeding the frenzy behind the upcoming elections.

Lorenzo might not trust the Five Star Movement (M5S), founded by former comedian Beppe Grillo and now run by the young Luigi Di Maio, but millions of other Italians say they do. And say they will be voting for M5S in the hope of overthrowing the establishment and taking action to revive the sluggish economy. 

The numbers speak for themselves: Italy’s economy, the fourth biggest in the eurozone, is 6% smaller than it was before the financial crash, has one of the highest levels of public debt and is plagued by bureaucratic and inflexible labour laws. And of course, deep-rooted and endemic corruption. 

It’s no surprise that claims by the ruling centre-left Democratic Party (which has led a fragile coalition over the last five years) that the economy has turned the corner are being treated with the usual shrug of the shoulders. While Italy’s output has declined since the crash – and unemployment soared – growth over the rest of the eurozone has risen five percent.

What’s more, poverty levels are shockingly high. Recent figures from Eurostat show that the number of Italians at risk of poverty has grown by more than 3 million since 2008, and that those living in absolute poverty – defined by Istat as not having enough money to buy a basket of basic goods and services – rose to 4.7 million in 2016.  

Although all Italy’s political parties are promising to spend more on social welfare, only the M5S promises a universal wage for the poor if it comes to power. 

Grillo’s populist promise is proving popular, and the polls show his movement looks set to emerge as the biggest party in the elections, with around 29% of the votes. This compares to around 25% polling for the Democratic Party, support which is said to be sliding away fast.

However, although M5S looks likely to win most of the most parliament and Senate seats, it is unlikely to win the 40% threshold required to have a governing majority in both chambers under the new electoral law, the Rosatellum.

That means M5S would have to do deals. And that’s a problem, because M5S has said it will not make deals. According to them, any deal with anti-immigrant party Lega (once known as the Northern League) or with comeback kid Silvio Berlusconi and his centre-right Forza Italia party would be a “moral compromise”. 

In the end, this intransigence on the part of M5S may lead to a coalition between Matteo Salvini’s hard-Right Lega and Berlusconi’s Forza Italia if they were to win a majority between them and cut a deal. 

And this is where the parties’ differing attitudes to the EU come into play. Di Maio’s M5S has toned down some of the anti-EU critique, saying that if the party comes to power, it would change some of its treaties with the EU and might hold a referendum on the euro, but not membership.

By contrast, Lega’s Salvini, who calls the euro a “crime against humanity”,  has used anti-EU and anti-globalisation rhetoric ferociously over the last few years – and it has helped the part whip up 14% of national support. Berlusconi, with about 15% of the polling, is the sole pro-EU candidate, so the two would have to find some sort of compromise. 

And Salvini, who has his eyes on being the next Prime Minister, hopes to be doing just that. He still wants to bring back the lira and remains anti-euro, but his Lega party is being more politic, preferring to take a softly softly approach. The party suggests introducing “perpetual Treasury notes” to pay off contractors and government debts; a sort of parallel currency to the euro, and a plan which would not go down well with Brussels. Behind the scenes, though, there are many people across the north who do still price and trade goods in the lira. 

Whether it is M5S which eventually takes control of the government, or a centre-right coalition between the Lega and Forza Italia, Italy is set for a bumpy ride if there is either a gridlock in the elections, or a new coalition which openly questions EU law – as both the M5S and Lega say they will. 

The markets are certainly anticipating bumps, with analysts predicting a wide spread in Italians bond prices and worries over banking risk if the elections result in a heavily anti-EU coalition. 

Indeed, Timothy Less, European expert at Cambridge University, says that Italy is rapidly emerging as the state on which the future of the EU rests. “Unlike Greece, it’s too big to fail but with official public debt of 133% of GDP and no control over its monetary or exchange rate policy, it’s not obvious how it can succeed.” 

Less adds that the only positive point for the EU is that most Italians want to stay in the Eurozone, so it won’t unilaterally withdraw. “Instead, I foresee an approximate re-run of the events with Greece in 2015, in which the new Italian government insists on doing something which is completely unacceptable to Frankfurt, leading to a game of brinksmanship, a referendum in which the government deliberately tries to tie its hands. That would lead to Italy’s subsequent ejection from the Eurozone, driven out by market pressure and miscalculation on the part of the European elites.”