On Sunday, 4th March, Italian voters will go to an election, widely accepted to be the most important in Europe this year. The results of the election in the EU’s fourth largest economy may bring the EU back to the crisis following the results of the Brexit vote.
The main parties in the election are the Five Star Movement (M5S) which is a new anti-establishment formed an year ago. The other party is the right-wing populist party, which is led by Matteo Salvini. It has the support of the former premier, Silvio Berlusconi. The two parties have campaigned on bringing new reforms that may increase the country’s budget and deficit. The country’s debt is currently 132% of its GDP.
In the past few years, the country’s GDP has continued to strengthen. Last quarter, it grew by 1.5%, which is below the EU’s average. This growth is continued to continue. In addition, the country’s stocks have been the best performing in the EU while the 10-year bond yield has remained below 2%.
While the country is in a better phase, it continues to face a lot of problems such as high rates of unemployment. In other words, the GDP growth has not been felt across the country.
The M5S group has little chances of winning the election. Nonetheless, they should not be ruled out since they are likely to win more sits in parliament. The political alliance which has more chances of winning is the one led by Mr Berlusconi. Recent polls place it at about 37% against the center-left alliance which is led by Matteo Renzi, who was the PM before he resigned in 2016. The latter party has been strongly weakened by recent defections and competition from the Free and Equal Party (Liberi e Uguali). The party that wins will then be tasked with selecting the next prime minister.
This election comes at an interesting period for the European Union. The Union is trying to negotiate an exit plan with the United Kingdom. To prevent other countries from following the UK’s footsteps, the leaders are trying to make the exit more difficult. It is also coming at a period when Germany’s chancellor, Angela Merkel is trying to form a coalition government.
A hung parliament or a win by parties that don’t believe in the Union may be a real blow to the Eurozone. This deadlock is feared by top EU leaders such as Jean-Claude Juncker. However, it has also the capability of producing a better result for the region than a complete win by the far rightists. It may present a chance for a coalition between Forza Italia and the PD, which may be headed by Mr. Gentiloni.
The election comes at a time when the Euro has moved to a multi-year high against the major currencies. As shown below, it has gained more than 20% in the past one year alone.
This year, the Euro and the EU countries need stability more than anything else. In the past few years, politics in the region have played a major hindrance role. As you recall, in 2015, the biggest issue was about the Grexit. In 2016, it moved to Brexit while last year, the talk was about the major elections in the region.