Is Italy’s Populist Government Manufacturing The Next Political Crisis?

Italian politics: the current state of play

In late September, the Italian Parliament approved the DEF (Documento di Economia e Finanza), with a deficit/GDP of 2.4 percent for 2019, considered excessive and dangerous by the EU. It was a critical moment. During recent months, prominent Italian politicians from M5S, the Partito Democratico and Lega had all weighed in on what the budgetary priorities should be.

Possible measures included a flat tax, basic income (reddito di cittadinanza) and a revision of the Legge Fornero of the Mario Monti government (a pension scheme named after a former minister), about which the ECB has already expressed its concern. Comments from some influential politicians in Italy have raised the distinct possibility that the Italian populist government may be forced to exit the eurozone if tensions over spending persist.

During the summer, the populist coalition had already discussed its strategic approach. As reported by Bloomberg, Deputy Prime Minister Matteo Salvini has continued the government’s ‘hard’ eurosceptic stance and pointed at the negative, constraining impact of EU rules. Salvini said: ‘If external constraints prevent us from spending to have safe roads and schools, then it really calls into question whether it makes sense to follow these rules. There can be no trade-off between fiscal rules and the safety of Italians.’

‘Strategic fear’

The populist government of M5S and Lega is ideally placed not only to benefit from these upcoming political storms, it may also seek to artificially manufacture such crises for its own political gains, in what resembles a self-fulfilling prophecy. Currently, there are strong tensions within financial markets, particularly with regard to Italian public debt. Similar tensions also befell the Berlusconi-led government in 2011, leading to a political crisis.

Strategically, the governing populist coalition may see Italy’s poor economic conditions as a unique opportunity to use the financial markets as an ‘alibi’ for broken promises (for example on the flat tax, basic income and pension reforms). They may seek to place the blame on (a) EU austerity policies, alongside the (b) the perpetual weakness of mainstream centre-right and left parties. This is because mainstream parties on both left and right are likely to be blamed by the populist coalition government for the poor economy that they have inherited. Thus, they may seek to point the blame at the political establishment, in turn deflecting it from their own doorstep.

A similar incident occurred in May, with public debt rising sharply. The President, Sergio Mattarella, took his time after the 2018 Italian election to respond to the proposed M5S-Lega nominees for cabinet positions. Mattarella eventually rejected the nominee for the economy ministry (Paolo Savona).

Both Italian deputy prime ministers, Luigi Di Maio (of M5S) and Salvini (of Lega) accused the financial markets and rating agencies of being behind Mattarella’s decision. They also alluded to the EU interfering with Italian politics and undermining Italian sovereignty. This, along with the decision to nominate a technocratic government under Carlo Cottarelli (a former Director of the International Monetary Fund), fueled M5S-Lega conspiracy claims.

Why the EU’s containment strategy may be doomed to fail

The EU must tread carefully in dealing with the populist Italian coalition government. Critically, technocratic institutions (from the European Commission to credit rating agencies) should not provide more ammunition for them. Arguably, this has already happened recently.

It would be extremely counter-productive to evoke the risk of a ‘Troika’ or even to usher in another technocratic government by actively interfering in the process. The case of the Monti administration springs to mind, further underlining the problems caused by unelected ‘technocrats’ in power, and how this can undermine the inner workings of liberal democracy – and, most importantly, alienate the Italian people.

Some recent political commentary argues that populist governments such as Italy’s are likely to represent a short-term phenomenon. However, we argue that the so-called EU containment strategy may instead serve to intensify and increase support for populist governments such as the M5S-Lega coalition.

It is also understood by many leading academic experts that: ‘Populism is usually better as an electioneering tool than as a guide for government policy. Populism is therefore bound to stay as a vocal opposition force. But if populist leaders are elected as presidents or coalition partners, they are likely to discredit themselves in office, at least in democracies.’ However, this may not be the case with the current Italian government and it may be much more resilient in governing Italy than conventional wisdom would have us believe.

The renowned expert on populism, Professor Cas Mudde, has also outlined how the Italian populist government has been misunderstood by several commentators, particularly in regard to the divergent ideology of both M5S and Lega. M5S can be considered a ‘centrist’ populist party that has a ‘catch-all’ political ideology, which includes anti-corruption measures alongside an emphasis on environmental policies. In contrast, Lega represents a ‘classic’ populist radical right ideology, with a focus on anti-immigrant positions.

A 21st-century populist governing strategy?

A ‘credible’ populist strategy by the current Italian government could involve further manufacturing a political crisis through a variety of routes. The coalition could (a) produce more public debt to achieve its costly promises, alongside (b) further adopting ‘hard’ Eurosceptic rhetoric. This strategy would further blame the EU and its institutions for the current economic malaise in Italy.

The ongoing refugee crisis has also provided a distinct opportunity for the populist government to achieve political capital in the minds of Italian voters. The populist government still riding high in the polls and performing considerably better than traditional left and right-wing parties. The populist coalition government also has a number of cards up its sleeves, including continuing to attack the ‘mainstream’ parties for getting them into the current economic mess that the populist coalition government has inherited. This would be a ‘classic’ populist playbook strategy in further outlining how M5S-Lega represents the ‘pure people’ against a ‘corrupt and outdated political elite’ in Italian politics. Paradoxically, the Italian populist government may seek to consolidate its power further by manufacturing the next political crisis.

Therefore, the financial chaos that weakened Italy in 2011 looks like it may be repeated, given the volatility of the current political and economic situation. It is likely to become even more volatile in the weeks ahead with the unpredictability of the populist governing coalition. Italian politics currently stands on the edge of a precipice.