Italy Populists Break Establishment Grip to Challenge for Power

Italy’s anti-establishment groups surged in Sunday’s election as voters punished the mainstream parties for years of economic decline, rising taxes and a wave of immigration, casting doubt over the country’s future political direction.

Initial results as of 3 a.m. Monday morning suggested the euro-skeptic Five Star Movement and the anti-migrant League were among the election’s winners, eroding more centrist groups to force a hung parliament. With no one group commanding a majority, weeks of horse-trading will be needed before a new government can be appointed. 

A center-right coalition backed by ex-premier Silvio Berlusconi, 81, was the single biggest group, according to early projections. But his bloc was forecast to only narrowly defeat Five Star, whose leader Luigi Di Maio, 31, exploited widespread anger at a ruling class often tainted by corruption scandals to become the biggest single party in parliament by a large margin. “Di Maio victory, Italy ungovernable,” summed up the Turin newspaper La Stampa.

Pro-EU parties have managed to contain populist insurgencies in German, French and Dutch elections over the past twelve months, but in Italy their defenses were exposed with the economy barely larger than it was when the euro was introduced almost two decades ago. The 2016 refugee crisis, which saw Italy on the front line, offered a second line of attack. The upshot is a far more unpredictable partner for European leaders such as Angela Merkel and Emmanuel Macron as they face the threat of a trade war while trying to reform the bloc.

“The Five Star Movement will be pivotal for any potential government,” said Silvia Merler, an analyst at the Bruegel think tank. “Will they prove responsible? Will they choose to open talks with the Democrats or with the Northern League? Italy’s economic future in the short term depends on that.”

Berlusconi Fall

Another layer of uncertainty was introduced when Berlusconi’s Forza Italia party was overtaken by its main ally, the League led by Matteo Salvini, whose anti-immigration message helped spread his party’s appeal from the rich industrial north to the depressed south. This looks to have wrecked the media mogul’s hopes of playing the kingmaker by flagging a premier if his party won more votes than the League.

All the same, the euro rose modestly in early Asian trading on the prospect that the mainstream will ultimately prevail. It was up 0.1 percent at $1.2327 as of 3:16 a.m. in Rome.

“What markets should feel is a slight tremor of hesitation at Five Star’s relatively high score, but I think what they will take away and absorb is the strong sense that Italy has a hung parliament,” said Erik Jones, professor of international political economy at the Johns Hopkins University in Bologna.

President’s Role

Once the results are in later on Monday, attention will shift to President Sergio Mattarella, who is charged with handing out the mandate to govern. He is unlikely to opt for the center-left Democratic Party of former premier Matteo Renzi, one of the night’s main losers after sliding to some 20 percent from more than 40 percent of the vote in European elections in 2014.

Ettore Rosato, head of the PD group in the lower house, said that if initial exit-polls were confirmed, “we will go to the opposition” -- costing Prime Minister Paolo Gentiloni his job and quashing speculation of a possible grand coalition with Forza Italia, the option favored by investors and Italy’s European Union partners.

Instead, they now face the prospect, albeit slim, of a populist alliance gaining significant sway over the euro area’s third biggest economy, potentially posing a challenge to French and German plans for European integration and turning Italy firmly against refugees.

Program Similarities

Both Di Maio and Salvini want to undo a reform of the ruling Democratic Party which raised the retirement age. Di Maio wants to hire 10,000 officials to crack down on illegal arrivals, and Salvini wants curbs on immigration from north Africa. Both have backtracked on plans to ditch the euro.

Although Di Maio and Salvini each ruled out an alliance during the campaign, their stances could change in the maneuvering that follows the election. Salvini said in October that if the center-right didn’t win a majority, he’d call Five Star co-founder Beppe Grillo.

Shortly after voting ended Sunday night, Alfonso Bonafede, Five Star’s candidate for the post of justice minister, grinned and sidestepped a question on whether the party would change its position and strike an alliance to form a government. “We will think about this only when we have the definitive numbers,” he said.