Italy votes on Feb 24/25. The best guess is that what will emerge is some sort of coalition between the front-runners, the center-left PD, and a grouping led by the current prime minister (and Brussels proconsul) Mario Monti. If that’s what happens, markets will breathe a sigh of relief, and Italy will continue to dig a deeper hole for itself. Any other result than that, and you might see panic. The most likely sources of an upset come from two different directions. From the right, there’s Silvio Berlusconi, consigned to the trash heap by Merkel and Mont late in 2011, but seemingly (polls are prohibited in the immediate run-up to the election) much more resilient than they had hoped. And then from the sort of populist, sort of left, the Five-Star Movement led by comedian Beppe Grillo (for a picture of his final rally in Rome go here). The chatter lately has been that Grillo’s lot have also regained momentum. A strong showing by them could be a very wild card indeed.
Complicating matters is the nature of the Italian electoral system. Basically a government (if it is going to get anything done) needs a majority in both houses of the legislature. Thanks to top-up provisions (somewhat analogous to those in Greece, but even more generous) that’s fairly straightforward in the lower house, but not in the Senate.
As it so often does, Open Europe has provided an invaluable primer for those who want to know more, a must-read (well, it was for me anyway).
The problem for Italy is that it needs both structural reform of the type that Monti has been pushing (with varying degrees of effectiveness) and a currency that reflects its own economic and political realities. The former is faltering, the latter is not on offer, and pro-cylical attempts at austerity only add to the misery and sense of profound political alienation.
The result: A not so dolce vita.