Italy is struggling to halt the spread of Covid-19 that has killed 148 people and infected 3858 individuals (as of 5 March at 6pm local time). The data released on 5 March by the authorities indicated that the number of infected increased by almost 600 individuals over the previous 24 hours – the most significant intraday increase since the outbreak was detected. The northern regions of Lombardy, Veneto, and Emilia-Romagna remain at the center of the epidemic.
Eleven towns and their 50K residents remain in lockdown in Lombardy and Veneto and another area around Bergamo could soon fall under quarantine. On 4 March, the government ordered the closure of all schools and universities nationwide until 15 March, an unprecedented measure. Public gatherings, sports competitions, and school trips have also been temporarily banned, and cinemas and theaters closed.
The government is preparing an economic package to mitigate the impact of the virus on the Eurozone’s third largest economy. Its overall value is expected to be around EUR 7-7.3bn. Given the limited availability of domestic resources, the funding for these new measures will need to come from an increase in the country’s deficit. The relevant authorization from Brussels is expected to be a mere formality.
A recession is, however, almost inevitable. Recall that 1) Italy was already registering the weakest rate of growth in the Eurozone, 2) the three northern regions most affected count for around 40% of GDP, and 3) tourism is worth approximately 13% of GDP. Supply-chain issues, liquidity problems faced by SMEs, and the impact on the transport sector will also undermine the overall economic performance.
On the political front, the Covid-19 crisis provides the government with much-needed space as it has forced the country’s litigious politics into “quarantine.” The planned 29 March referendum on cutting the number of lawmakers has also been postponed. Recent polls suggest that even Matteo Salvini’s daily attrition war against the government is not benefiting any longer his party’s popularity. Matteo Renzi, in turn, has pragmatically embraced the mantra of national unity and used the crisis to try to breathe new life into his previously announced and comatose “shock plan” for Italy.
However, this unusual political truce will be temporary. The Covid-19 outbreak and its “management” have manifestly exposed the limits and weakness of the executive and the coalition backing it. The government response has been oscillating between alarmism and playing down the risks throughout the crisis. As a result, it has been communicating uncertainty, confusion, and, at times, panic at home and abroad. The chain of command does not appear clear nor streamlined, as shown by the amateurish handling of the school closure announcement. Prime Minister Giuseppe Conte has not hesitated to blame local and regional authorities and sought cover by putting the scientific experts on the spot whenever needed to deflect criticisms. His clumsy attempt to reinforce his political standing via an overdose of media appearances at the very start of the crisis badly backfired. Most importantly, he has so far failed to provide much-needed leadership and to reassure the population.
The next test for the fragile government will be the economic response to the crisis. It is doubtful that it will manage to do much better on this front. This will expose the government, and especially the PM, to a new round of attacks by both Salvini and Renzi. While the lack of an alternative remains the government’s primary source of strength, the coalition’s fragility will likely become even more acute once the health emergency has declined. Heightened political noise is set to follow the ongoing truce, but the risk of snap elections before year-end remains low.