Italy’s four main political parties no longer have a consensus over the electoral law. Still, Italy is likely to go to the polls, triggering the kind of uncertainty the markets — and certainly the Eurozone — would like to avert.
In a vote on Wednesday, Italy’s four leading political powers – the ruling PD, the 5-Star Movement, Silvio Berlusconi’s Forza Italia and the far-right Northern League – failed to agree on a bill introducing a German version of proportional representation.
Last week markets reacted negatively to the news that these four parties had in fact reached a political consensus. But, in a secret ballot, the bill fell short of approximately 60 votes, apparently due to a relatively minor amendment introduced by the ruling Democratic Party (PD). Internally, the PD itself is split over the electoral reform, not to mention a deeper looming political cleavage with an internal left-wing opposition led by the former Prime Minister Massimo D’ Alema.
As the ruling party blames the 5-star movement for the collapse of the political consensus, markets on Thursday hailed the political “failure” as a sign that Italy may yet be able to steer away from elections. Milan’s stock market reacted positively, while Italian bond yields markedly fell. Markets apparently hoped that Italy will not go to the polls before May 2018, as scheduled.
Opinion polls suggest there is no clear governing majority and the anti-Euro 5-Star movement could well come out first. Instability is the only certainty. But, avoiding elections and instability is not likely.
Since Wednesday, most politicians project a snap election within in 2017, as the ruling PD may now attempt to push through its electoral law of preference by decree. PD spokesman Matteo Richetti said that a snap election may be the best choice for Italy. The Northern League is also willing to back the ruling PD if it goes down that road.
A political consensus for a new electoral law might be restored, as the 5-Star movement insists the pact is still in force.