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June 16, 2020

ITALY: Con-Te (With You) or Without?

BY Wolfango Piccoli

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( 5 mins)
  • The relationship between Prime Minister Giuseppe Conte and the coalition parties is set to become increasingly fractious.
  • The main risks for Conte are infighting with the Five Star Movement and his own ego.
  • Regardless of Conte’s political fate, the likelihood of snap elections in H2 is very low.

While Prime Minister Giuseppe Conte’s alleged popularity has triggered speculation that he may bid for the leadership of the Five Star Movement (M5S) or create his own political party, the reality is that the premier has never been so politically isolated. Both the M5S and the Democratic Party (PD) – the two main parties in the governing coalition – have attacked Conte and publicly distanced themselves from some of his key initiatives and statements. A potential further complication for the beleaguered PM could emerge from an ongoing investigation by prosecutors in the northern city of Bergamo over the failure to isolate two nearby towns in early March as the virus spread. As the public health emergency is gradually losing its salience and the crisis’s economic cost manifests itself in all its gravity, it is just a matter of time before he is forced to face the consequences of his personality-driven governing style. This could make him a convenient scapegoat for a governing coalition that has been overactive on the communication front and under delivered in terms of policies.

Regardless of Conte’s political fate, however, the risk of snap elections in H2 remains very low, if not close to zero. Yet the political backdrop in the remainder of the year is set to become less stable and supportive, further clouding the country’s economic prospects. Policy inertia and ill-conceived initiatives aimed at regaining popularity will prevail while an intense electoral cycle, the budget process, and possible social tensions will distract the ruling coalition.

Popular but lonely

Conte’s approval ratings have soared during the Covid-19 crisis and recent polls have suggested that a party (dubbed Con-Te, With You) run by him could gather around 12-14% of the vote, mainly (around 60%) at the expense of the M5S and PD. If he were to become M5S leader, the party would see its popularity jump from 19% to 29%. These polls – which must be taken with a very large pinch of salt given the intense electoral volatility, distortions created by the crisis-induced rally-around-the-flag effect, and the limited electoral appeal of name recognition ­­– make rather grim reading for both the PD and the M5S.

Fearing that Conte is carving his own political path, the PD has asserted itself within the ruling coalition and abandoned its acquiescent support for the PM. On the M5S front, party bigwig Alessandro Di Battista openly challenged Conte by saying that if the premier wants to become party leader “he has to sign up as an M5S member and take part in the next congress.” Di Battista’s concomitant call for a party congress rekindled intra-party tensions and noise about a possible split. It is unclear whether Di Battista timed his move to steal the media limelight away from the opening of Conte’s “Stati Generali dell’Economia” – a nine-day set of high-level talks aimed at relaunching the economy.

While the overall event will likely amount to little more than empty window dressing, it will be critical for Conte’s tenure in office to secure the support of key business groups, like Confindustria, and trade unions. This endorsement would likely allow Conte to see through the summer in office under the pretext of working on a recovery plan for the economy that he has pledged to deliver in September.

The other short-term key signpost relates to a possible request to tap the ESM’s pandemic credit line, which allows Italy to borrow as much as EUR 36bn at about 0.1% interest, once the talks on the EU recovery fund are completed. Even though the ESM has become toxic in Italian politics, the government could seek to use the ESM to secure funds needed to beef up the health system ahead of a possible second wave of Coronavirus. Such a decision would inevitably create infighting within the ruling governing coalition, and especially within the M5S. Given the high stakes involved, Conte will likely let Parliament decide on the matter, and for a majority to emerge, the support of some opposition lawmakers (mainly from Forza Italia) could be required.

A difficult autumn

In late September, voters will have the first opportunity to pass judgment on the actions of the government during the crisis. The vote (the first round is likely to take place on 20-21 September) in seven regions and more than 1,000 municipalities, as well as a confirmatory referendum to reduce the number of MPs, will constitute a delicate moment for the PM and the parties in the coalition.

Another signpost relates to the risk of post-summer social tensions due to the confluence of various factors. Various tax payments deferred due to the crisis are due in September, when also the suspension of interest payments benefiting SMEs on roughly EUR 220bn of loans will expire. The job retention scheme is currently set to end on 31 October. While the economic and social costs of the pandemic will become dramatically clear in the autumn, a storm is already brewing due to the bureaucracy’s inability to deliver the pledged state aid to both individuals and workers. In a 15 June report, the national statistics agency indicated that only one-third of the firms that have asked for financial help have received it.

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