Italian government on the brink (again): Has Renzi's hour come?

‘Staffetta’ is the most used word in the Italian media these days. It literally means ‘relay’, and it refers to the

possibility of Prime Minister Enrico Letta handing over power to a new coalition government led by Matteo Renzi – the Mayor of Florence who was elected as the new leader of Mr Letta’s centre-left Democratic Party in December.

The two are holding talks in Rome as we write this blog post, ahead of a key party meeting scheduled for tomorrow. Speculation is growing in some Italian papers that Mr Renzi already has a list of ministers in mind.

If the takeover does materialise, as looks increasingly likely if you scan the Italian press, a few points are worth keeping in mind:

• The change of government would not change the numbers in the Italian parliament, where no party holds a majority in the Senate, the upper chamber. Renzi may be able to muster wider parliamentary support than Letta, but he would still be stuck with a diverse coalition with smaller centrist and centre-right parties – meaning that the difficulties in pushing ahead any significant political and/or economic reform would not evaporate. 

• The handover of power would happen without an election, something which could backfire in terms of Renzi’s image vis-à-vis the electorate – not least because the Mayor of Florence has been clearly saying that he wasn’t keen on replacing Letta without a vote. 

• Therefore, a better option at this point might be to pass a new electoral law quickly and call snap elections. The electoral law currently being discussed is not perfect, but it would make sure that the winning party/coalition would secure a solid majority in both houses of the Italian parliament. It could be done in time for the beginning of Italy’s rotating EU Presidency on 1 July. Indeed, this would mean two months of political paralysis because of the electoral campaign. But despite all the good intentions, Mr Letta’s government has so far hardly delivered on the big reforms it was supposed to implement. Most importantly, at the end of the process Italy would have a government which has actually come out of the polls – rather than negotiations among party leaders.

Berlusconi virtually out of Italian parliament, but clearly not yet out of Italian politics

The Italian Senate's Immunities Committee has recommended that Silvio Berlusconi be ousted from parliament as a result of his recent tax fraud conviction. The Committee will now submit a motion to the full Senate for approval within the next 20 days. The final plenary vote is supposed to be a mere rubber-stamping exercise, so we wouldn't expect any surprise. 

A couple of quick thoughts:

• The expulsion from parliament would certainly be a hard blow for Berlusconi, but wouldn't mean the end of his political career. With all due differences, comedian Beppe Grillo has shown that it's fully possible to lead a party from outside parliament. 

• Most importantly, Berlusconi's large public support is unlikely to evaporate overnight. In the eyes of many Italians, Il Cavaliere remains the example of a successful self-made entrepreneur - and the victim of a conspiracy of left-leaning judges.

• Indeed, once the process to expel him from parliament is completed, Berlusconi will find himself with a couple more trials under way - and no more parliamentary immunity. However, he remains unlikely to spend any time behind bars because of his age.

• That said, the key aspect at this stage is perhaps what will happen to Berlusconi's party in the near future. As we noted in our previous blog posts, the confidence vote in the Italian Senate earlier this week triggered a mutiny that ultimately forced Berlusconi to an unexpected U-turn. Things seem to have cooled down a bit, but the risk of a party split off the back of Wednesday's rebellion remains. This would be a bigger setback than the loss of a seat in parliament.

• On a more general note, one of the reasons why Berlusconi still looks likely to remain a rather influential figure in Italian politics is the lack of an obvious substitute to take the lead of Italy's centre-right forces. So far, Berlusconi has to a large extent, either by hook or by crook, been able to keep his side of the political divide together. The day he leaves the stage, we may well witness the fragmentation of that side of the Italian political spectrum. The impact of such a split on the country's political stability is difficult to predict at this stage.

Italy plunged into fresh political turmoil: End of the line for PM Letta?

UPDATE (18:15) - Silvio Berlusconi has just come out of a meeting with MPs and Senators from his party. According to reports in the Italian media, he has outlined the following roadmap: a quick vote on the 2014 budget and a couple more economic measures (Berlusconi apparently said this can all be done in one week), followed by snap elections.

Not sure this can represent a good basis for a potential compromise with Enrico Letta's centre-left Democratic Party - not least since Berlusconi's strategy seems to imply a return to the polls without changing Italy's controversial electoral law first. We explained in our original blog post from this morning why this could be a huge gamble.

UPDATE (15:45) - Italy's Minister for Relations with Parliament, Dario Franceschini (from Enrico Letta's party) has just confirmed that the Prime Minister will address the Italian Senate on Wednesday morning and the Chamber of Deputies on Wednesday afternoon.

However, Mr Franceschini also stressed that a confidence vote after the debate is "very likely", but will ultimately "depend on how the debate will go". We think there are two possible interpretations here, depending on whether one wants to see the glass half full or half empty:

1) Mr Letta is still confident Berlusconi could backtrack on his plan to bring the government down;

2) If, based on the statements made by the various political groups during the debate on Wednesday morning, Mr Letta were to deem the confidence vote in the Italian Senate absolutely impossible to win, he may decide to skip it and tender his resignation straight away.

ORIGINAL BLOG POST (9:30)  

For regular readers of this blog (see here, here and here), Silvio Berlusconi pulling the plug on Italy's fragile coalition government was just a matter of time - especially after his conviction for tax fraud. On Saturday, Il Cavaliere ordered ministers from his party to resign and called for snap elections.

The official reason for doing so was the Italian government's inability to scrap a VAT increase planned by the previous technocratic cabinet led by Mario Monti, due to kick in tomorrow. However, it would be naïve to see no correlation with the fact that Berlusconi is to be ousted from parliament within the next few weeks as a result of his tax fraud conviction. 

So what happens next? The moment of truth will be on Wednesday, when Prime Minister Enrico Letta will seek a vote of confidence in both chambers of the Italian parliament. The key vote will be the one in the Senate, the upper chamber, where Mr Letta's centre-left Democratic Party does not command a majority on its own.

Scenario 1 - Letta survives the confidence vote in the Senate

Tough, but definitely not unrealistic. Letta needs around 20 Senators from either Berlusconi's party or Beppe Grillo's Five-Star Movement to break ranks and support him. Over the past few days, politicians from both parties have hinted at possible defections. Crucially, after tendering their resignations, four of Berlusconi's ministers have expressed reservations over their leader's decision to open a new political crisis at this stage. All this suggests Letta does have a chance of winning the vote in the Italian Senate, and staying in power with a different, albeit thinner, parliamentary majority (and after a rather substantial cabinet reshuffle).

However, this would only be a temporary fix. With his new majority, Letta could try and address a couple of urgent issues (a reform of Italy's tortuous electoral law and the budget for 2014 are the most obvious) - and perhaps plan for early elections at some point next year.  

Scenario 2 - Letta loses the confidence vote

If Letta loses the confidence vote, he will have to resign. As we explained several times, the ball would then be in Italian President Giorgio Napolitano's court. Napolitano would have to hold talks with all the political parties and then make a decision: task Letta himself or someone else with forming a new government, or dissolve parliament and call new elections.

New elections in Italy can take place no less than 45 days after parliament is dissolved. The risks of a quick return to the polls are obvious. Voting again with the same electoral law may well lead to another inconclusive outcome - meaning that Italy could be facing a few months of political paralysis at a time when the country can least afford it. As if things were not complicated enough, the electoral law is currently also being examined by the Italian Constitutional Court, with a ruling expected in early December - and is at risk of being declared at least in part unconstitutional.

This is where we are at. Clearly, none of the two scenarios would provide the medium-term political stability Italy needs to get its act together - which in itself is not great news for both the country and the eurozone as a whole. Everything will depend on how Wednesday's vote of confidence goes.

Follow us on Twitter @OpenEurope and @LondonerVince for all the updates. 

Q&A: All you need to know about Berlusconi's tax fraud trial and its potential implications for the Italian government

UPDATE (19:20): Supreme Court prosecutor Antonio Mura has just requested that Berlusconi's public office ban be cut to three years. The four-year prison sentence should be upheld, he said.

A very interesting development, although the Supreme Court would obviously be free to uphold the entire five-year ban if it wanted to. As we noted in our blog post from this morning, we will have to wait until tomorrow (or maybe even Thursday) before the final verdict is read out.

OUR ORIGINAL BLOG POST (10:58) 

The final hearing of Silvio Berlusconi's tax fraud case (the so-called 'Mediaset trial') has started in Italy's Supreme Court this morning. However, according to the Italian media, the verdict is likely to be read out tomorrow - or even on Thursday morning.

We thought a short Q&A would help highlight the potential significance of the ruling:

1. Which trial are we talking about? And where are we at?

We are talking about the so-called Mediaset trial, where Berlusconi faces tax fraud charges. The former Italian Prime Minister was found guilty by both the first-instance court and the Court of Appeal. He was sentenced to four years in prison and a five-year ban from holding public office. Therefore, he appealed to the Supreme Court. The Supreme Court is Italy's highest court, meaning that Berlusconi would have no more appeals left if the conviction were upheld.   

2. But he can still be acquitted, right?

Of course. The court can decide to clear Berlusconi completely. Or it can rule that the case must be re-examined by the Court of Appeal. This would increase the likelihood that the tax fraud charges against Berlusconi time out - since Italy's statute of limitations would kick in at some point during the late summer of 2014.

3. What happens if the Supreme Court upholds the conviction? Would the sentence be immediately effective?

No. Berlusconi is a Senator, so he is protected by parliamentary immunity. Therefore, a vote in the Italian Senate's Immunities Committee and a vote in the Senate plenary (most likely through a secret ballot) would be needed before the public office ban can be enforced. Berlusconi's party could be easily outvoted in both cases, but the outcome would be far from guaranteed in reality - not least because Berlusconi's party could threaten to withdraw its support to Prime Minister Enrico Letta's coalition government if the votes go 'the wrong way' from its point of view.

4. Would Berlusconi be likely to spend any time behind bars?

No. If the four-year prison sentence were upheld, three years would be remitted anyway due to an amnesty law passed by Romano Prodi's centre-left government in 2006. This would leave Berlusconi (a 77-year-old man) with only one year to serve - making either house arrest or community service the most likely options.

 5. Okay. Now, let's assume the Supreme Court upholds the tax fraud conviction and the Italian Senate rubber-stamps the public office ban. Berlusconi has to resign and is banned from holding public office for the next five years. What happens to the Italian government?

The short answer is, "Nobody knows". Several senior members of Berlusconi's party have evoked drastic retaliation (withdrawal from government, resignation en masse of Berlusconi's MPs and Senators, snap elections, and so forth). The truth is Il Cavaliere would make the final decision - and his party would then almost certainly follow the leader. Sure enough, there would be the potential to trigger a political crisis in Italy.

6. Could this be the end of the line for Berlusconi's political career?

Not entirely. Even if served with a five-year public office ban, Berlusconi could continue to lead his party - although he would not be allowed to stand for election. 

As usual, we recommend you follow us on Twitter @OpenEurope and @LondonerVince for all the updates from Rome.

Italy's new Prime Minister: Pro-EU integration, anti-austerity?

We've detected strong demand for a quick profile on Enrico Letta, who has just been appointed Italy's new Prime Minister. With the debate raging over the wisdom or otherwise of German-style fiscal discipline in the eurozone, the big question is: is Letta against austerity? Here's a short bio:

• Letta is from Tuscany and will turn 47 in August. This means he's in line to become Italy's third-youngest Prime Minister ever. 

• He holds a PhD in European Law, and was appointed Europe Minister in 1998. At the time, he was 32 - which made him the youngest Italian minister ever. He also served as Industry Minister under Massimo D'Alema.

• Letta was an MEP between 2004 and 2006. 

• He's been the deputy leader of the centre-left Democratic Party since 2009.

• Importantly, he is a big AC Milan fan - which could help him win support from Silvio Berlusconi. Well, perhaps along with the fact that Enrico Letta is the nephew of Gianni Letta, Il Cavaliere's closest aide. 

So what about his political views and that key austerity point?

In his press statement after the meeting with President Giorgio Napolitano, Letta said Italy should be

"firmly committed to changing the direction of EU [economic] policies [which are] too focused on austerity, which as European Commission President [José Manuel] Barroso said the other day are no longer sufficient."

(Hallo, Angela!) 

And remember that when the EU won the Nobel Peace Prize, Letta tweeted the award should be

"a spur to be prouder, more concrete and effective in our pro-European stance. There's no future without the United States of Europe." 

This goes to show he is strongly in favour of more EU integration (though admittedly so are a majority of Italian politicians). In other words, Napolitano has appointed a Prime Minister with solid European credentials and who can credibly argue for an easing of austerity in the EU. Quite smart. 

Crucially, Letta also stressed the new government won't be formed "at any cost". This can be seen as a warning to Silvio Berlusconi not to set out too tough conditions for lending his support. However, it's worth bearing in mind that Berlusconi's centre-right alliance is ahead in all opinion polls - meaning Silvio is in a position of strength right now.

Letta will hold talks with all other political parties tomorrow. If things move on smoothly, we should have the list of ministers by the end of the week. Follow us on Twitter @OpenEurope and @LondonerVince for further updates from Italy. 

Italy has a new Prime Minister. And it's a surprise one...

Enrico Letta, deputy leader of Italy's centre-left Democratic Party and Pier Luigi Bersani's right hand, is very close to becoming Italy's new Prime Minister. He's currently meeting President Giorgio Napolitano (as you read this blog post), and will be given the mandate to form a new government.

Letta emerged as the main candidate in the last 24 hours. The fact that Napolitano has chosen Letta  is significant for at least two reasons:

• Letta is undoubtedly a politician, as opposed to the previous favourite Giuliano Amato, who would have been seen as a technocratic Prime Minister. This means Napolitano has opted for a political solution to the post-election stalemate;

• Letta is 47, and Amato is 75. So the choice made by 88-year-old Napolitano addresses the Italian electorate's call for a rejuvenation of the political system. This is significant in the 'old vs young' struggle that has characterised Italian politics recently.

We will provide more detailed analysis once Letta unveils his list of ministers. In light of his appointment as Prime Minister, we would now expect politicians rather than technocrats to grab ministerial posts - although we can't rule out the involvement of a couple of technocrats in the new cabinet. 

However, make no mistake: this move doesn't wipe out the deep divisions among the main political parties, and whatever shape the government takes, it won't be easy for Italy to continue with the reforms that the eurozone demands.
    

And Italy's new President is...the old one! What happens next?

It took the Italian parliament almost three days and six ballots to elect a new President of the Republic. Well, newish. Incumbent Giorgio Napolitano, who will turn 88 in June, eventually caved in to pressure and agreed to serve a second term. This is unprecedented in Italian history and shows how deep the country's political crisis is. Unable to overcome the stalemate and agree on a new President, the main parties have turned to the old one and begged him to stay.

The good news is that, following Napolitano's re-election, Italy looks set to have a new government in place sooner rather than later. The big news is the new government would undoubtedly include Silvio Berlusconi's party.  

What happens next? 

• Napolitano will take his second oath this afternoon. From that moment, he will re-gain the power to dissolve parliament and call new elections.

• Crucially, Napolitano has said he will "clarify the terms" under which he agreed to stay on in his (second) inauguration speech. The Italian media are speculating on at least two conditions. First, a shorter mandate than the seven years set out in the Italian Constitution - otherwise Re Giorgio would be leaving office at 95. Second, and most important, the formation of a national unity government - backed by the centre-left Democratic Party, Mario Monti's centrist group and Silvio Berlusconi's People of Freedom party.

• The markets seem to take the formation of a new government for granted, with Italy's borrowing costs going down this morning. 

• The latest from the Italian media is that Napolitano will hold a swift round of talks and could give someone the mandate to form the new government as early as tomorrow. There are reportedly two clear favourites to lead the new government. One is Giuliano Amato, 75 years old, who already served twice as Italian Prime Minister. The alternative is Enrico Letta, Pier Luigi Bersani's right hand. We would put our money on Amato, especially since not everyone within Letta's own Democratic Party is enthusiastic about him being appointed as Prime Minister.

• The new government is likely to be a mix of politicians and technocrats. It will focus its efforts on bringing home 5-6 key reforms, based on the proposals put forward by the ten 'wise men' earlier this month. We expect the new government to give priority to political, rather than economic reform. Top of the agenda will be changing the electoral system, along with reforming a pretty dysfunctional institutional structure where the two houses of parliament have perfectly equal powers.

• In any case, the new government is unlikely to remain in charge for the entire five-year parliamentary term.

Winners and losers of Italy's presidential election

Silvio Berlusconi: Big winner

Whether you like him or not, Berlusconi's handling of the presidential election was masterful. He avoided 'hostile' candidates being elected (think of former European Commission President Romano Prodi or left-wing Law Professor Stefano Rodotà, Beppe Grillo's man). Any new government will be dependent on his party's support - exactly what Il Cavaliere wanted since the beginning. The centre-left is in disarray, and his centre-right alliance is now ahead in all opinion polls. No surprise Silvio was so radiant when Napolitano's re-election became official on Saturday evening.

Beppe Grillo: Winner

Beppe Grillo also comes out as a winner, although his victory is likely to become more obvious in the longer term. The Five-Star Movement's presidency candidate Rodotà was a high profile one. Yet, Rodotà was ignored by Bersani's Democratic Party - which never really considered backing him without giving any plausible explanation for doing so. Ideal conditions for Grillo to claim "a clever institutional little coup" was materialising. We would expect a surge in popular support for the Five-Star Movement - though maybe not in the immediate future.

Pier Luigi Bersani: Big loser

With a couple of poor strategic decisions, Bersani has pushed his party to the edge of a break-up and lost his left-wing ally SEL. After kissing goodbye what could be his once in a lifetime opportunity to become Italian Prime Minister, he also had to step down as party leader. And his party looks set to be in government with Berlusconi again - an option Bersani firmly opposed. Bersani burst into tears the moment Napolitano was re-elected. Some of that may just be relief at his ordeal being over.

So this is where we are at, but things are moving quickly. Keep following us on Twitter @OpenEurope or @LondonerVince for real time updates from Italy.

The election of the new Italian President: Has Silvio just scored another one?

The Italian parliament starts voting to elect the new President of the Republic today. Centre-left leader Pier Luigi Bersani has agreed with Silvio Berlusconi and Mario Monti to back the candidacy of Franco Marini - an 80 years old, pipe-smoking former trade unionist and Senate speaker (see picture).

Bersani faced a clear political choice. He could either support the candidate put forward by Beppe Grillo's Five-Star Movement (law professor Stefano Rodotà) or go for a more Silvio-friendly name. The decision to back Marini is a clear sign that Bersani does not want to burn all the bridges with Il Cavaliere - given that talks on the formation of the new Italian government will resume after the election of the new President.

However, Bersani may have overlooked the knock-on effects of the decision in his own camp. This is what happened after he told his party about his decision yesterday:

• The party split over Marini's candidacy. Florence Mayor Matteo Renzi, regarded by many as Bersani's successor as party leader, called Marini "a candidate from the past century". Italian papers estimate that up to 90-100 members of Bersani's party will not vote for Marini.

• Bersani's left-wing ally Nichi Vendola said Marini's candidacy was "the end of the centre-left". His MPs will vote for Grillo's man instead.

Needless to say, all this plays into Berlusconi's hands. His centre-right alliance looks far more united at the moment, and is ahead in opinion polls. If Marini is elected as President and the split in the centre-left remains (admittedly two big ifs), Il Cavaliere could be tempted to push seriously for a return to the polls - this time with a good chance of victory.

Finally, a quick reminder of how the voting works. There are 1007 'great electors' (all the 630 MPs + all the 319 Senators + 58 regional delegates). There will be two ballots a day - the first one is currently under way. A two-third majority (672 votes) is required in the first three ballots. A simple majority is sufficient from the fourth ballot on.

Ballots are secret, so it's hard to predict whether Marini will make it in one of the first three ballots. Expect the vote to be very tight anyway. If Marini fails to achieve the two-thirds majority, Bersani may consider putting forward another name to try and repair some of the damage made to his party.

Follow us on Twitter @OpenEurope and @LondonerVince for all the updates on the vote.    

How many wise men does it take to fix Italian politics?

Markets remain deceptively calm as uncertainty rumbles on in Italy. Italian President Giorgio Napolitano has created two commissions, now known as the ‘wise-men’, which will seek to find some common ground between the various political parties in Italy and therefore, potentially, provide a basis for a coalition government. Although, they only have 8 to 10 days to do so.

The first committee with look at economic, social and European affairs, while the second will focus on institutional (in particular electoral) reform. Napolitano has been at pains to stress that the committees will not determine an agenda for a new government or set any policies; they will simply look to facilitate fresh dialogue and find areas which the parties can work together on.

So where does each party stand now? What are the prospects of finding some ground to build a coalition upon?

Pier Luigi Bersani and his centre-left group:

• Bersani has continuously ruled out entering a grand coalition with Berlusconi’s centre-right group and yesterday reiterated this position, adding that such a government would be paralysed.
• That said, Bersani has warned that new elections would be “disastrous”. Having failed to form a viable government after being given the mandate by the President it is unclear exactly what Bersani wants, particularly with his options dwindling quickly.
• An SWG poll suggests Bersani’s party’s trust in him has fallen to 30% while behind the scenes trust in Florence Mayor Matteo Renzi has reached 55% (+6%), while 66% of Italians say they would like him to guide the centre left instead.

Silvio Berlusconi and his centre-right group:

• By some polls this group is now ahead. In any case they remain a formidable force and are playing their hand by insisting on a grand coalition or fresh elections.
• Yesterday, Berlusconi’s party accused the centre left of pandering to “factional interests” rather than needs of the country.

Beppe Grillo and his Five Star Movement:

• Has ruled out taking part in a coalition government. Has also ruled out providing a formal backing to a technocratic government. May consider providing support to a government on certain issues but remains unclear exactly what conditions would be needed for this.
• Has been critical of the ‘wise-men’ calling them "domestic carers for democracy".

So, the groups remain split along some fairly fundamental lines. Some elements of consensus may be found but it remains unlikely that these will be enough to form a workable long term coalition. A more likely outcome remains a grand coalition being put in place to push through some electoral reform ahead of new elections. A similar scenario with another technocratic government is also possible.

At the same time the new Presidential elections loom large. Voting begins on the 18 April with Napolitano’s term officially expiring on 15 May. This is likely to lead to further delays in forming a government. Napolitano looks set to pass the problem onto his successor, with many criticising the formation of the working groups as a way to eat up time. He can also not call new elections, meaning that the new President would be responsible for doing so – realistically then they cannot take place until June.

Another month or two of uncertainty seems likely in Italy, and any certainty may only come with new elections being announced (itself a source of further uncertainty). Markets have been calm so far, but with the acute problems in Cyprus dying down the spotlight could once again turn on Italy.

Italy: Bersani failing to form government wouldn't automatically mean new elections

There were rumours of a further postponement until Good Friday, but Italy's centre-left leader Pier Luigi Bersani has confirmed he will meet President Giorgio Napolitano tomorrow and report on the outcome of coalition talks with other political parties. The truth is talks haven't gone particularly well. At the moment, Bersani doesn't seem to have the numbers to win a preliminary vote of confidence in the Italian Senate - absent which the new government wouldn't be allowed to enter office.  

Clearly, Bersani's failure to form a government would make snap elections more likely. But there is still some room left for negotiations. For the moment, we have tried to imagine the content of the meeting between Bersani and Napolitano (providing no eleventh-hour U-turns occur).

Scenario 1: Bersani admits he doesn't have the numbers and asks for more time to strike a deal 
This is fully possible, and it shouldn't be a big problem for Napolitano to give Bersani more time for a second round of talks. However, it is unclear how much an extension of talks would change if none of the big parties moves from its current position.

Scenario 2: Bersani admits he doesn't have the numbers, but asks to be sworn in anyway
Bersani's reasoning here would be that, when the time to vote the confidence to the new government comes, some Senators (mainly from the Five-Star Movement) would break ranks and back him. This is a huge gamble, though. At the moment, even assuming that Monti's Senators all vote the confidence to the new government, Bersani would still need at least 15 Senators to reach the minimum required majority of 160.

As such, Napolitano may not want to run the risk - and here is why. When a new government is sworn in, it must win a vote of confidence in both houses of the Italian parliament within ten days from the oath before it can enter office. If it fails to do so, it stays on as caretaker while the Italian President decides what to do next. But Napolitano is quite keen to keep Monti as caretaker instead - so he will probably only agree to swear in a government which can realistically win the vote of confidence.

A boring (but necessary) caveat before we move on to Scenario 3. It is possible for Italian Senators to leave the chamber before a vote, so that they are 'absent' when the roll is called. Absent Senators don't count, meaning that the required majority goes down. Now, Lega Nord leader Roberto Maroni has hinted at the possibility of his and Berlusconi's Senators leaving the chamber en bloc before the key confidence vote to a hypothetical new centre-left government - allowing Bersani to win the vote.

Of course, Maroni made clear this could happen only if "certain conditions" were met - including an agreement to elect a man close to the centre-right as the next Italian President next month. But this could potentially be a way out of the impasse.

Scenario 3: Bersani throws in the towel and hands his mandate back to President Napolitano
This wouldn't automatically mean new elections - which, in any case, can only be called by the new Italian President when he enters office in mid-May. Napolitano would have to start a new round of talks and then decide what to do. As we explained in previous blog posts, the most likely outcome would be the Italian President proposing a temporary 'national unity government'.

The new cabinet would be led by someone from outside of 'traditional' party politics (the word 'technocrat' seems to have gone out of favour in Italy these days) - but the ministers could indeed come from political parties. It is unclear whether Berlusconi's party would grant its support, but this solution may have some chances of winning the Five-Star Movement's backing. This 'national unity government' would pursue a clearly limited agenda, and pave the way for early elections - perhaps as early as next year, but with a new electoral law.

It's all very much up in the air in Italy at the moment, but in case of a definitive breakdown of talks everyone will suddenly be reminded of which country should be the eurozone's real concern.  

A grand coalition with Silvio is hard to swallow for Bersani, but...

The leader of Italy's centre-left Democratic Party, Pier Luigi Bersani, is in an unenviable position right now. He has been asked by Italian President Giorgio Napolitano to go and meet pretty much everyone (trade unions, employers' associations, political parties) and see if he can get the support he needs to command a majority in Italy's hung Senate. Bersani will report back to Napolitano on Thursday, and is due to meet a delegation from Silvio Berlusconi's PdL party this afternoon.

Berlusconi is playing the hand he has been dealt quite well, taking advantage of Beppe Grillo's refusal to cooperate. Il Cavaliere has already set his conditions for supporting a Bersani-led government: Angelino Alfano (the Secretary General of Berlusconi's party) should be the Deputy Prime Minister, and a man close to the centre-right should be elected as the next Italian President.

Bersani has so far rebuffed Berlusconi's offers, but we have thought of at least three reasons why he may eventually change his mind:

• Bersani is probably facing a 'once in a lifetime' opportunity to become Italian Prime Minister. He is already 61 (although age is not necessarily an obstacle in Italian politics), and if Italy were to return to the polls he would likely come under huge internal pressure to step down as party leader and give way to someone else. Remember Bersani was at the front of an electoral campaign during which his centre-left alliance squandered a double-digit lead in the polls in about two months. Florence Mayor Matteo Renzi seems to be the most obvious candidate to replace Bersani in case of new elections.

• More generally, Bersani's own party is already split on this specific issue - with a group of key members close to Renzi not hostile to cooperation with Berlusconi. Reggio Emilia Mayor Graziano Del Rio, for instance, told La Repubblica that if Italian President Giorgio Napolitano were to propose a 'national unity government' (which in Italian political jargon is also known as Governo del Presidente, the President's government), Berlusconi's and Bersani's parties should not be "picky" and should work together for the good of the country. Bersani can't afford to just ignore these voices if he wants to preserve his party's unity in the longer term.   

• Italy's three largest trade unions - which have close ties with Bersani's party - have explicitly come out against new elections and urged Bersani to form a government "at any cost".

The situation remains extremely fluid, but if cooperation with Berlusconi were the only alternative to re-run elections, these are three reasons why we believe Bersani would at least think twice before sending Italians back to the polls. 

Italy: Will Bersani have any luck in forming the new government?

While the spotlight has firmly been on Cyprus these last few days, over in Italy centre-left leader Pier Luigi Bersani has just been given a mandate to try and form the new government by President Giorgio Napolitano.

Bersani has been explicitly asked to talk to other political leaders and report back to President Napolitano "as soon as possible" - we assume this will happen at some point next week. Basically, he will have to prove that his government would be supported by a majority in the Senate - the hung upper house of the Italian parliament - before he gets the definitive go-ahead.

So what happens next?

• Bersani will try to convince the other parties to back his plan for a 'minority government', which would seek parliamentary support on a law-by-law basis. It's going to be difficult. Beppe Grillo's Five-Star Movement doesn't want to do business with anyone, while Silvio Berlusconi is clearly in favour of a proper 'grand coalition' with Bersani - as this could see his party getting several ministerial posts. However, President Napolitano himself has today acknowledged that a 'grand coalition' presents "relevant difficulties".

• If Bersani does not succeed, he will have to give up his mandate to the President - who will then have to task someone else with forming the new government. This person would probably be someone from outside of traditional politics - that is, someone capable of gathering cross-party parliamentary support as Mario Monti did in November 2011. As we've noted, incumbent Interior Minister Anna Maria Cancellieri and Senate speaker Pietro Grasso are the names doing the rounds in the Italian press.

• Failing this, the only option left would be new elections. A slightly untimely outcome, given what's happening in Cyprus (think market pressure).

In the meantime, Mario Monti stays on as caretaker Prime Minister - he will leave office only after the new cabinet is sworn in. Keep following us on Twitter @OpenEurope and @LondonerVince to stay on top of events in Italy (and beyond).
   

Beppe Grillo, the Five-Star Movement and the euro enigma: Episode 2,478

We have noted on this blog before that it would be a bit of a stretch to describe Beppe Grillo's Five-Star Movement as an anti-euro party - mainly because it has yet to adopt an official position on the issue. At the moment, not even the referendum on Italy's membership of the single currency appears in the Five-Star Movement manifesto.

According to an ISPO poll published by Il Corriere della Sera on Sunday, if this referendum were to take place in Italy, 73% of Five-Star Movement voters would opt to stay in the euro - and only 17% would vote for a return to the Lira. An overwhelming majority.

However, Professor Mauro Gallegati (see picture) - one of Beppe Grillo's closest economic advisors - gives a slightly different picture in an interview with French business daily Les Echos today. He says, 

The [Five-Star] Movement is still split over the euro. There is a good part of supporters who are in favour of an exit from the single currency. Personally, I’m against [euro exit] because I think the cost to the Italian middle class would be prohibitive. 

So to what extent the Five-Star Movement's electorate can be described as anti-euro remains unclear. But the poll and the interview both leave another key question unanswered. What do the Five-Star Movement's 163 MPs and Senators-elect actually think about the euro? This is quite hard to figure out at the moment, given that they are not allowed to speak to the press. But they may have to take a clearer stance sooner rather than later, not least because official talks on the formation of the next Italian government are due to kick off next week.

Follow us on Twitter @OpenEurope or @LondonerVince for the latest from Italy.

Q&A: The 'Berlusconi paradox'

Silvio Berlusconi has just been sentenced to one year in prison in the so-called BNL-Unipol trial. We thought a short Q&A could be useful for those of you who don't follow Italian politics on a daily basis.

What was Berlusconi accused of?

Berlusconi was accused of leaking a wiretap phone call between centre-left politician Piero Fassino (currently serving as Mayor of Turin) and the then head of Italian insurer Unipol Giovanni Consorte to Il Giornale, a daily newspaper owned by Berlusconi's brother Paolo. Italian prosecutors had seized the wiretap as evidence in a separate investigation, so its disclosure was strictly forbidden.

Will Berlusconi go to prison?

Unlikely, for at least three reasons. First, he can still appeal against today's ruling twice - and the sentence can't be executed until the two appeals are exhausted. Second, the charges against Berlusconi (in this specific trial) will 'time out' at some point during the summer under Italy's statute of limitations. Third, Berlusconi turns 77 this year - meaning he may already be too old to go to prison anyway.

What's the impact of the ruling on Berlusconi's political career?

None, at least for now. Today's verdict does not involve any ban on taking public office and, again, has yet to be confirmed pending two separate appeals. Under Italian law, presumption of innocence remains valid until then (and rightly so).

So what's the significance of the ruling?

The ruling remains significant because the possibility of re-run elections in Italy is still on the table, and Berlusconi is also facing two more verdicts by the end of the month (including over the infamous 'Rubygate' affair). Having said that, though, remember Il Cavaliere was sentenced to four years in prison in a separate trial over allegations of tax fraud a couple of months before the elections, and yet, somewhat extraordinarily, over 7 million Italians chose to vote for his party anyway.

Is Beppe Grillo forcing Italy to new elections?

One-by-one, Beppe Grillo and the Five-Star Movement are shutting all the doors to possible government arrangements. Vito Crimi, designated as the Movement's faction leader in the Italian Senate, told reporters yesterday:

If we were proposed a technocratic government, we would consider it. But we confirm our 'No' to a government of the [political] parties.

Less than 24 hours later, though, Crimi posted the following on his Facebook page (yes, that's how the Five-Star Movement communicates):

I never spoke of support to a technocratic government. The only solution we propose is a Five-Star Movement-led government which implements the first 20 points of our programme immediately.

Grillo himself wrote on his blog this morning,

The Five-Star Movement won't support a technocratic government, and it never said it would do so. There's no such thing as technocratic governments in nature, but only political governments backed by parliamentary majorities. [Mario] Monti's government was the most political of the post-war period.

These remarks overlapped with those made by Stefano Fassina (see picture), the economic spokesman of Pier Luigi Bersani's Democratic Party, who told Canale 5 this morning,

I exclude a technocratic government based on an agenda which has been rejected by [Italian] voters...We're not willing to form a government with [Silvio Berlusconi’s] PdL party, and if Grillo is not willing to back the [next] government, we will have to face a new round of elections, even if this is not what is needed now.

So the possibility of re-run elections has been explicitly mentioned again, as several options for compromise are being struck down. However, reports in the Italian press suggest that President Giorgio Napolitano could still have an ace up his sleeve: Italy's outgoing Interior Minister Anna Maria Cancellieri.

According to Il Corriere della Sera, Napolitano could ask her to form the new government if Bersani failed to do so. Cancellieri would lead a 'government of purpose' - meaning that she would focus on a limited number of urgent reforms, and would seek the parties' backing in parliament on a case-by-case basis. Grillo would probably not change his mind, but Cancellieri could win support from Bersani's and Berlusconi's parties. The rumours are echoed by Italian magazine L'Espresso, which features a biography of Italy's "Iron Grandma" (Cancellieri is 68 years old) on its website.

This solution could be seen by some as more desirable than new elections in the next couple of months. Whether such a government will be able to continue with the reforms Italy needs to re-gain competitiveness within the eurozone is a completely different story.

And who are you again? Grillo's MPs and Senators meet each other for the first time

163 MPs and Senators-elect from the Five Star Movement met in Rome yesterday and today. As an initial party meeting after a general election it was quite unusual: despite belonging to the same party, most of the elected representatives had never heard of each other before, let alone met. Beppe Grillo himself did not know many of them, and that's why he joined the meeting today - along with the Five-Star Movement's media guru Gianroberto Casaleggio. Remember, the Five Star Movement selected its candidates through an on-line survey, so no face-to-face contact involved.

This shows just how far away the Five-Star Movement is from being a traditional political party - by any standard. And there's some more stuff:

• Large part of today's meeting was live-streamed and available to everyone online; 

• At the meeting, each of the 163 parliamentarians-elect was given the opportunity to introduce him/herself to the others, and explain what his/her background and areas of interest were;

• The MPs and Senators-elect are all considered 'spokesmen' and 'spokeswomen' of the Five-Star Movement;

• The 163 today chose their faction leaders in both houses of the Italian parliament by a simple show of hands. The faction leaders will only hold the post for three months, and are to be replaced after that.

Incidentally, the faction leader in the Italian Senate is Vito Crimi, a 40-year old (the minimum legal age to be elected as a Senator in Italy) judicial assistant from the Northern town of Brescia.  The faction leader in the Chamber of Deputies, the lower house, is Roberta Lombardi. She is 39, holds a degree in Law and works for an interior furniture company.

Whatever one thinks of the Five-Star Movement, it was quite impressive to see so many Italian MPs in their thirties (or even twenties) in the same room. Finally some fresh air in Italian politics, some might say. We still don't know what the Five-Star Movement will do next. Grillo made a quick appearance at the very beginning of the meeting today, saying that the Movement will only vote for the laws which fit with its manifesto - but he said that several times before.

It remains to be seen how this enthusiastic but inexperienced lot will react when the new Italian parliament convenes - on 15 March, or a bit earlier - and talks on the formation of the next government enter their decisive stage. The time for post-election celebrations may already be over for the Grillini. The question is: will this innovative approach to party politics hold (think party discipline) when things get serious?

Anti-euro party? Grillo's advisor says leaving the single currency would be "an absurd mistake"

Everyone is trying to figure out the enigma that is Beppe Grillo and what his Five-Star Movement actually wants.

On Europe, for example, where this isn't at all clear. As we've noted, Grillo himself has been very critical of the euro in the past, and toyed with the idea of a return to the Lira - although he is now keen to point out that he never explicitly said that Italy should leave the euro. But his party might be a different matter.

Italian Professor Mauro Gallegati, who is considered one of Beppe Grillo's closest economic advisors and one of the people responsible for writing the party's economic policies, said in an interview with today's Corriere della Sera,

[Italy's euro exit] would be dramatic, an absurd mistake which would reduce Italians' income by 30-40%. If anything, what's needed in Europe is a real political union, as in the US, with a central bank which can devalue the currency.

In other words, the Five-Star Movement can't quite be described as an 'anti-euro party' (as we've said before, see here and here). In fact, 'Europe' doesn't even feature in its manifesto. And remember, the Five-Star Movement is a very fluid construction - what Grillo says in public, or writes on his blog, doesn't automatically translates into 'party policy'. What we do know is that the party is definitely anti-austerity, which inevitably brings it into 'Europe territory'.

If you have not yet done so, watch a short video summary of our breakfast discussion yesterday, in which we sought to decode Grillo in particular and the Italian election results in general.

Grillo: Bersani is a "dead man talking...pestering us with indecent proposals"

Right. So much for an instant Bersani-Grillo love affair (note instant). This is hilarious: 

As expected, Pier Luigi Bersani and his centre-left coalition have tried to reach out to Beppe Grillo. But Bersani didn't quite obtain the reaction he was hoping for.

On his blog, Grillo has posted a round-up of comments made during the electoral campaign by Bersani regarding both the comedian himself and the Five-Star Movement , under the headline "Bersani: a dead man talking" (see the picture). Here's a sample:

• "There's little democracy in the Five-Star Movement." 
• Five-Star Movement people are "web fascists. Come out call us zombies."
• "With Grillo, we will end like Greece."
• "Lenin is not even nearly as bad as Grillo."
• "Grillo leads to disaster."
• "Grillo makes promises like Berlusconi."
• "If Grillo wins, the country will be in trouble."
• "Grillo? He can take us out of Europe."
• "Grillo takes people out of democracy."
• "Grillo is a third-rate autocrat."

Grillo says in the blog post:

"Bersani is a political stalker. He's been pestering the Five-Star Movement for days with indecent proposals, instead of resigning as everyone else would do in his situation."

"Over the past twenty years, [Bersani's] Democratic Party was in government for ten years, and over the past year-and-a-half it even took part in the grand coalition government with [Berlusconi's] PdL party, backing any sort of junk proposed by Rigor Montis [Grillo's nickname for Mario Monti]."

"The Five-Star Movement won't give any confidence vote to the Democratic Party or others. It will support in parliament only the laws that mirror its programme - whoever proposes them." 

So Bersani's first charm offensive (which we explained in more detail here) hasn't been very successful, and the centre-left leader is now in a quite uncomfortable situation. Bersani will almost certainly try again, but if cooperation with the Five-Star Movement proves a non-starter, he may face a tough choice (as we pointed out in our reaction to the Italian election results):

a) Go cap-in-hand to Berlusconi and say, "Scusa Silvio, we just changed our mind. Are you still up for a grand coalition?"

b) Throw in the towel and admit that there is no alternative but to call new elections.

One last thing: it's interesting to note that several people commenting underneath the post urge Grillo to be a bit more cautious, given the "historic opportunity" the Five-Star Movement has to change Italy. Will Beppe listen?  

The inbuilt political stand-off in the ECB's bond-buying programme

One of the many sub-stories of the Italian election is how it calls into question the ECB's bond-buying programme - the Outright Monetary Transactions (OMT). Not so much because of the ECB's ability to expand its balance sheet and stand behind Italy and Spain (though there's a clear cost to that). The reason is another one: unpredictable politics.

This is something we highlighted immediately following Mario Draghi's announcement to launch the OMT, in September 2012. We said:

"It will also be virtually impossible for the ECB to impose effective conditionality on debtor countries, meaning that the ECB can only hope that a series of unpredictable political decisions in member states will go in its favour."

To inject such conditionality, the OMT was linked to the European Stability Mechanism - the eurozone's permanent bailout fund - which comes with strict conditions (or at least is supposed to). To tap the OMT, a country has to be on an ESM programme. But, in effect, this made the OMT - despite it being run by an independent central bank - hostage to parliamentary and electoral politics.

As we argued in our analysis on the German Constitutional Court ruling on the ESM - a few days after the OMT announcement in September last year:

"...the ruling and the role of the Bundestag highlights that activating the OMT will be challenging, since in order to qualify for ECB bond-buying, a country must first get funding from the ESM – and be subject to conditions. If the Bundestag agrees to activate more bailouts, it will most certainly push for harsher conditions than what debtor countries – most importantly Spain – are willing to accept. In the long-term, under current arrangements of linking ESM and OMT, the latter is also effectively capped and subject to a Bundestag veto."

Well, enter the Italian elections (and Beppe). Discussing the election results, we told the Telegraph on Monday that:

“People have forgotten that the OMT cannot be triggered without a vote in the German Bundestag. This is going to be a huge problem, and we may be back to the political stand-off between the North and South of Europe,”

And in our flash analysis yesterday, looking at the Italian election results, we noted:

“A fragmented, anti-austerity Italian parliament could also make it far more difficult for the country to tap the ECB’s OMT. This is because it would need to access the European Stability Mechanism simultaneously, meaning a series of strict conditions – which Berlusconi and others could resist – and approval from several Northern Eurozone parliaments, including from the Bundestag.”

Other analysts are now waking up to this issue as well.

Then again, if it ever came to a point where Italy actually needed to tap the OMT, things might be so bad that politicians on both sides (probably during a panic-stricken weekend) could be scared into accepting whatever ESM-deal that could be struck.

But it all goes to show that in the eurozone, there's no escaping the politics.

Italy election: Did a Bersani-Grillo alliance just become a real possibility?

Italy's centre-left leader Pier Luigi Bersani has just held his first post-election press conference. He's clearly not as good at soundbites as Beppe Grillo (or Berlusconi), but this is the gist of what he said:

The centre-left coalition is willing to "take its responsibilities" given that it got most seats in both houses of the Italian parliament;

He said of Beppe Grillo and the Five-Star Movement,

"They used to tell us to 'go home'. Now they're in [parliament] too. Italy is also their country. Let's see what they want to do for their country."

Crucially, Bersani said that, if asked to form the new government, he will put forward a "programme" - basically a to-do list for the next government, including changes to the electoral law, cuts to the cost of bureaucracy and politics in general and new policies for job creation to be discussed at the European level (whatever that means).

His line was that it's more important to "discuss what we want to do for this country" rather than wasting time on "diplomatic" exercises in an attempt to form a 'traditional' coalition.

And that sounds very similar to Grillo said earlier today, i.e. taking a policy-by-policy approach rather than going for a fixed coalition (as opposed to Berlusconi, who seems quite keen on a proper 'grand coalition'). So, could there be some sort of loose Bersani-Grillo alliance emerging?

Still early days...