Almost a decade after the sovereign debt crisis began in Europe, with increasing sentiment for countries to withdraw from the Eurozone currency union, and for the first time in Italy, a narrow majority voted against the establishment parties.
The trouble? The Italian people voted for two separate anti-establishment parties: The Five-Star Movement with 32.7 percent of the vote and the League with 17.4 percent of the vote.
Italy has one of the largest sovereign debts in the world at €2.5 trillion but since the crisis in sovereign bond markets emerged, hitting Greece, Portugal, Ireland, Spain and Italy the hardest, the debtor nations have been held captive in the euro currency.
Any other sovereign country in such a situation would use its central bank to engage in open market operations and restore confidence to markets, essentially printing money to pay the debt. It would be default by another name.
But Eurozone countries only received assistance from the European Central Bank with very stringent terms. In essence, Brussels was taking over the sovereign decisions of member countries, and dictating terms to legislatures.
The experience helped fuel uprisings all across Europe.
The radical-left Syriza decimated the Socialists in Greece in 2015.
The Five-Star Movement in Italy has slowly gained support in successive elections since 2013 and now is the largest single party in the country. It had consistently supported a national referendum to leave the Eurozone but in this past cycle party leader Luigi Di Maio would only call such a referendum “a last resort, which I hope to avoid.”
In the UK, Brexit reached critical mass in 2016 as the British people voted to leave the European Union.
For his part, the League’s Matteo Salvini — whose party beat out Silvio Berlusconi’s Forza Italia — remains opposed to the Eurozone, stating on the campaign trail, “I remain convinced … that the euro under these conditions was an error. Which we will put right.”
Now, Salvini has become the top contender to lead a national government in Italy. He had formed a center-right coalition with Berlusconi. Together, they garnered 37 percent of the vote. Almost, but not quite enough to get the 40 percent needed to form a government.
To get across the finish line, Salvini has to make a deal. So would Di Maio, whose Five Star Movement — founded by comedian Beppe Grillo — has never joined a governing coalition, always opting for opposition.
Could Salvini and Five Star come together to address Italy’s fiscal woes?
Obstacles include divergent views on immigration, with Salvini taking a Trumpian stance against the wave of migration from the Middle East throughout Italy and more broadly Europe.
The party of Matteo Renzi, who has resigned as Prime Minister, could also serve as an obstacle, although Renzi on his way out the door suggested his party would be in opposition and not form a coalition with the Five-Stars. Renzi’s center-left coalition only received 23 percent of the vote.
Claudio Borghi, the League’s top economist suggested that the Five-Stars form a government with the center-right in an interview with Reuters: “What I would prefer for my country would be the centre-right and 5-Star because I think we could find common ground.”
Which, there is something to be said for that. One thing that united Five Star and the center-right was opposition to Renzi’s proposed constitutional referendum, which failed by about 6 million votes, losing 41 percent to 59 percent. In many ways, the same coalition showed up in Italy on March 4.
But Salvini ruled out such a grand coalition, at least initially, stating, “The 5-Stars have changed their minds too many times and on too many topics, so for me it’s a big ‘no.’”
What about with Renzi? Salvini was quick to quip, “I won’t comment on the debacle of others, Matteo Renzi’s arrogance has been punished.”
To get to the 40 percent needed to form a government, Salvini will either have to make a deal with Di Maio or with perhaps smaller members of Renzi’s coalition.
Di Maio could play the kingmaker or could form the opposition with Renzi’s party.
If the center-right and parts of the center-left cannot form a coalition, then Di Maio may be more well-positioned to assume control, in a coalition with parts of the center-right coalition or with Renzi’s party.
The question is, what happens? Who knows? It’s Italy. Under their constitution, the President of Italy, Sergio Mattarella, determines which party gets an opportunity to create a government. By its nature, the system calls for compromise. Anything could happen. Stay tuned.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.
