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December 16, 2020

Europe

ITALY: A staged crisis while Covid-19 and policy paralysis dominate

BY Wolfango Piccoli

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Though formally undeclared, a managed political crisis has unofficially started. The likely outcome will be a new program and priorities for the executive supported by all parties in the current ruling coalition and a limited cabinet reshuffle. Following the required parliamentary confidence vote, current Prime Minister Giuseppe Conte would lead a third consecutive government. While any political crisis has an element of uncertainty, the risk of early elections remains negligible. The allure of managing billions provided by the EU recovery fund and the innate spirit of self-preservation of most MPs mean that an agreement, even if only a temporary one, will be reached.

While this political theater plays out, the pandemic will continue to dominate and dictate the agenda. At best, the reshuffle and a “new” program will give a temporary semblance of unity and coherence. The management of the public health crisis and the related economic challenges is not expected to improve. Italy will also continue to struggle to put together a coherent plan to use its share (around EUR 209bn) of the available EU grants and loans. There is a high risk that most of the funds will be used by the ruling parties to consolidate their power bases rather than addressing the country’s structural deficiencies. On the vaccination front, the prospects are equally worrying. There are concerns about the lack of personnel (the government is hoping to hire 12k medical professionals next month), syringes, and vaccines.

Conte overreaches, Renzi attacks

The pandemic allowed PM Conte to concentrate power and secure significant leeway from his political backers. However, the government’s disastrous management of the second wave of Covid-19, coupled with the inefficient handling of the financial aid pledged to businesses and workers and an amateurish communication policy, have undermined Conte’s standing. Unable to properly read the political situation, Conte proceeded to make the ultimate mistake when he recently presented a plan that would have put him in charge of managing the financial resources provided by the EU. With Conte overreaching on the governance of the EU funds, Matteo Renzi seized the opportunity to reassert the politicians’ prominence (and the profile of his moribund Italia Viva party, a junior partner in the ruling coalition) by threatening to pull the plug on the government.

The cornered PM was thus forced to hold “verification talks” – bilateral meetings with each party of the majority to listen to their concerns and assess if and how the current tensions can be recomposed. After holding talks with the Five Star Movement (M5S) and Democratic Party (PD), PM Conte is expected to meet with Italia Viva representatives on 17 December. Despite the complexity of finding a compromise that can suit his political masters while allowing him to retain his job, Conte has strong incentives to seek a new political equilibrium quickly. The pending parliamentary approval of the 2021 budget (which must be completed by 31 December) and various crisis-related decrees provides Conte will political coverage. Failure to approve the budget is a no-go for all the coalition leaders. Conte is also aware that his standing could suffer more if he dithers, as the pandemic is likely to worsen in early 2021, making further restrictions probable.

The expected political compromise is likely to materialize in stages. At first, Conte will have to drop his plans about the governance of the EU funds. A new governance mechanism that gives a bigger oversight role to parliament (and specifically to Italia Viva) could then be formulated next month. The ruling parties will also secure a bigger say concerning key appointments for the new governance structure. A limited reshuffle of the cabinet in January would then bring closure to the crisis. Looking further ahead, Conte’s third government will remain a fragile governing arrangement that is utterly inadequate to lead the country out of the economic quagmire precipitated by the pandemic.