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Wednesday, October 02, 2013

Italian PM Letta survives key confidence vote: What's next for Italy?

What looked like an imminent political crisis has just been defused in Italy. As we anticipated in our previous posts (see here and here), Italian Prime Minister Enrico Letta has managed to survive a vote of confidence in the Senate - the upper chamber of the Italian parliament where his Democratic Party doesn't hold a majority.

In a last-minute U-turn, Silvio Berlusconi has decided that his party would support the government after all - turning a potential showdown into a mere formality. Nonetheless, what just happened in the Italian Senate does have consequences for the future of Italian politics. Here are a couple of thoughts.

1. Letta stays on, but uncertainty remains over what his government can deliver

The first, and most obvious, immediate consequence of today's vote is that Enrico Letta can stay on as Italian Prime Minister and maintains, at least on paper, his overwhelming parliamentary majority. However, it remains to be seen what Letta and his cabinet can deliver in terms of bold, concrete measures to get Italy going again - not least because some fundamental differences between the parties forming Italy's ruling coalition will remain.

One may argue that, faced with a party mutiny ahead of today's vote, Berlusconi would have finally learnt his lesson and would think twice before triggering new crises in future. But we wouldn't rule out new coalition rows. Berlusconi is famous for his CEO-style handling of his party, and he tends to take all the big decisions on his own - which makes him a very unpredictable coalition partner.    

Another important issue is: how long will Letta stay in office for? It's no secret that both him and Italian President Giorgio Napolitano would like the current government to continue at least until after Italy's rotating EU Presidency (July-December 2014) - and then perhaps go to early elections at the beginning of 2015. This would still be much earlier than 2018, when the current parliamentary term is supposed to end.

Questions will also remain over whether, if the crisis deepened once again, Italy would really be able to gain access to the ECB’s bond-buying programme, the OMT. As we mentioned above, Letta has clearly won the day - but uncertainty remains over his government's ability to push through unpopular measures.

Crucially, the ECB has made it clear that any country accessing the OMT must have a credible government in place to enforce the necessary conditionality attached to bond purchases (very likely to involve significant structural reform and budget cuts).

2. This is not the end for Berlusconi, but he's just been dealt a hard blow 

There's another reason why today's confidence vote is significant. Looking beyond the appearances (and the last-minute coup de théâtre) Silvio Berlusconi has, in substance, seen his plan to bring Letta's government down disrupted by a rebellion from within his own party. Last weekend's decision to pull his ministers out of cabinet has therefore proved a miscalculation, and will have at least two consequences:
  • Berlusconi's threats to bring the government down if he's voted out of parliament as a result of his recent tax fraud conviction are no longer credible; 
  • 25 senators from Berlusconi's party have this morning announced the creation of a breakaway group in the Italian Senate, irrespective of how the rest of the party would have voted. Though far from certain at this stage, today's defectors may well decide to follow up and quit Berlusconi's party - which in turn may reduce Il Cavaliere's electoral strength.
Berlusconi has shown his resilience several times, so we are unlikely to be witnessing the end of his political career just yet - even after he's ousted from parliament. Let's not forget that polls suggest he maintains quite large public support, with the help of his control over a large swathe of the media. We wouldn't expect him to take this challenge lying down. That said, his leadership of Italy's centre-right forces has today unequivocally been put into question.

These are our preliminary thoughts. We'll continue monitoring the situation in Italy very closely, so keep following us on Twitter @OpenEurope and @LondonerVince for all the updates.


Rik said...

The problem in Italy is and has been for a year or so now that the resp 2 governments have been (resp had become) effectively dysfunctional.
Letta like Monti before him looks basically ok compared to the usual crap that is disguished as leaders in the EU. That is not the problem.

The problem (first part) is that he doesnot get real structural stuff through parliament. And it will be even more complicated now.
The second part of the problem is that markets have given upon Draghi's wild promises combined with having any government a stay of execution. This stay is however extremely likely much shorter than the time to fix things (get measures through parliament and make them work).
Markets look still pretty bullish at the moment but also with eyes open for a reversal (most people understand we are in a bubble but want to be ready when people start to move for the exit). This change of sentiment is a matter of months usually (maybe still a few of those to go) but never a matter of many years what Italy needs (after they have decided to do something).

In a nutshell Italy is driving into a wall. How that will end is still a ?. Not by getting the thing functional again however imho. Timing simply doesnot add up.
Either massive ECB interference (best way to hide its costs for the Northern taxpayers as it is a lot of money). Hard to see any other way to keep the South especially Italy going. Direct bail outs are political suicide in the North. While this however is a deferred stealth form.
Anyway doubtful the ECB should get away with that especially in Germany while the general public is well aware of the consequences of CB actions. Anyway some people will get enough of this theatre long term political pretending on important daily issues simply doesnot work in a democracy.

Rik said...

It looks btw (longer term) as if the party is about to collapse.
Berlusconi mainly too old anyway, apparently his voters donot mind all the dodgy stuff so much and the negative international image it gives).
It simply looks like he has lost control. The deserters are a very good indication that they think his time gone.

Have to be seen how this plays out of course. But if Silvio is forced out hard to see how his party can survive in the present size. No new electorate pulling material in sight. The present 'traitors' looking pretty dubious for hardcore Berlusconi fans anyway.
No air time and clever PR.

On the other side this might be the thing with which he has overplayed his card. Internally but also with the voter. First as said it looks that way. Second I am doubtful in the way that a new leader can be appointed in his party and things would simply go on as usual.
Hard to see how the Berlusconi-less party could have the same appeal to voters. Add less airtime (aka free commercials that will be gone).

Likely a lot of votes will be up for graps.
But to whom:
-present party could split. But normal central right will not be very appealing for hardcore Berlusconi voters and there is no real succession in sight.
-Monti and Co. Completely different in so many ways.
-Move to the left. Unlikely to happen. All over Europe there is percentage wise very little move and the left look crap as well.
-The Clown. This kind of populist is more leftish and anti-Bunga. Difficult to see as a real alternative.

Looks like that it will be a negative choice. When it is really that far.
If there will be an election in the near future (and everything still looks like that) Berlusconi still will turn out himself (probably the Grillo way).
But more the election after that.