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  • 2018/05/29
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Italy: deciphering the institutional crisis

Last weekend’s onslaught of events was enough to disconcert observers. After the Prime Minister declined to form a government and following convulsive calls for the President of the Republic to be impeached, we will try to interpret the intentions of the various players who paved the way for this institutional crisis and, in doing so, to identify possible ways out of the current impasse.

With its back against the wall, the League must express its preferences

“Not enough yield and too much risk”, and “the game is between the populists and the rest”. These two sentences, affirmed by Matteo Salvini, leader of the League, over the past few weeks, best explain the situation of institutional crisis into which Italy has been plunged. They highlight the difficulty faced by the League in positioning itself between an unnatural alliance as junior partner with the M5S anti-establishment movement and a return to a centre-right coalition. This choice, now critical, will be decisive for understanding the true intentions of the next majority that will govern Italy. For now, these sentences help us understand the failure of this first attempt to form an anti-establishment majority. As we wrote two weeks ago, “The coalition agreement between M5S and the League includes key concessions granted by M5S to the League, which is surprising for a coalition partner that secured the best election results. These concessions can be explained by the need to keep on board a coalition partner less interested in participating in this government. The long-term strategy of League leader Matteo Salvini, which is to lead a new Italian right (still fractured into the three parties of the centre-right coalition), is ill-suited to taking on the role of junior partner in a coalition with M5S. The court decision that rehabilitates Silvio Berlusconi and opens the way for him to stand as a candidate, together with the sharp rise in the League’s poll standings (25%), could make the scenario of a return to the polls, with the possibility of a clearer victory for the centre-right coalition, more attractive. And, what if we had counted our chickens before they had hatched (with regard to the formation of an anti-establishment government)?” It is in light of these intentions, which we can attribute to Mr. Salvini, that we can interpret the showdown with the President over the make-up of the Council of Ministers.

Looking back on an unprecedented institutional standoff

The appointment of Prime Minister Giuseppe Conte was itself the result of an initial standoff between the President and the two anti-establishment forces. The Italian President has taken to heart his role as guarantor of the Constitution – a role assigned to him by the Constitution itself. In particular, has sought to strike the right balance (constitutionally speaking) between the legislative and the executive branches, i.e. between the role of political parties and that of the Council of Ministers and the Prime Minister. According to Articles 92 and 95 of the Constitution, it is the President of the Republic who appoints the Prime Minister and, at the latter’s proposal, the ministers. It is the Prime Minister who oversees general government policy and assumes full responsibility for it. Despite his doubts about Giuseppe Conte, a university professor of private law, unelected, unknown to the general public and with no experience of institutional positions, the President set aside his hesitation about Conte’s actual ability to exercise the prerogatives of the role. Party pressure was significant and at the limits of what might be deemed ‘constitutionally acceptable’. Finally, Conte was appointed, but not without a necessary clarification of his commitment to confirm Italy’s European and international positioning and to abide by constitutional principles and rules (chief among them Article 81 on balancing the budget). This concession by the President allowed him to focus his role as institutional guarantor on the appointment of the Minister for the Economy and Finance, a key position to reassure European partners and investors (and creditors). This appointment was the focus of renewed pressure from the parties, including in particular the League, which sought to impose its candidate, Paolo Savona. This economist, a former director of the Bank of Italy and Minister of Industry in the Ciampi government in 1993 (the government that worked to restore the conditions of membership of the single currency after the European monetary system stalled), has since openly expressed his criticism of the Economic and Monetary Union, pointing out the limits of its current configuration and proposing an exit clause. While there were legitimate doubt over investors’ perceptions of this individual and his convictions, the President was also keen to affirm the constitutional rule according to which the choice of ministers lies with a head of government in full possession of his powers and the President has the last word on this choice. He had therefore made clear his opposition to party pressure, and in the end proposed Giancarlo Giorgetti, a political figure from the League and former member of the Chamber of Deputies’ Finance Committee. This proposal would have easily allowed the parties to save face and given Italy a minister who is both politically experienced and competent.

Matteo Salvini’s stubbornness over Savona drove the Prime Minister to relinquish his mandate, giving rise to the institutional crisis.

Doubly irresponsible

This unwillingness to consider any alternative is now being widely interpreted as an excuse to engineer the demise of an alliance that was becoming increasingly uncomfortable for the League, while placing the blame on a third party, namely President Mattarella. During the process of drafting the government agreement, the League’s message became more radical, especially on issues related to the euro, which were largely absent from the two political forces’ election campaigns. A preliminary version of the coalition agreement, leaked in the press, included a proposal to introduce into the European Treaties (Treaty of Amsterdam) a clause providing for the possibility of a member country of the Economic and Monetary Union exiting the union, as well as cancelling all debts held by the ECB under the quantitative easing programme. In the end, the final version of the agreement made no mention of the possibility of a Member State exiting the euro, proposing instead a simple rewrite of the rules on multilateral supervision of public finances; nor did it provide for the cancellation of public debt held by the ECB, but rather its exclusion from the calculation of the parameters of the Stability Pact.

The fact remains that the return to the fore of EMU-related issues, around which the election campaign had shown some moderation, ended up worrying investors and the European institutions. Their return to the fore can be interpreted as a desire to spark a confrontation with the institutions leading to a breakdown of the government agreement, while at the same time preparing the ground for the next election, with the intention of majoring on hot-button eurosceptic issues to siphon off more extreme M5S voters disenfranchised from the movement by the process of empowerment and normalization initiated by leader Luigi Di Maio. Salvini’s refusal to endorse Mattarella’s counterproposal on the candidacy of Giancarlo Giorgetti (his right-hand man) made it clear for all to see that the League was not ready to assume responsibility for a confrontation with the European Union.

Sergio Mattarella, fully aware of the consequences of his decision, has taken responsibility for setting the tone of what will be his position during the next five-year term, during which it will be necessary to more proactively affirm the checks and balances than in the past, since the resilience of the country’s institutions and the substance of the next government’s agenda will both be closely monitored by partners and investors alike. Indeed, tussles between the anti-establishment forces and the institutions are likely to become more frequent.

This has already begun with M5S leader Di Maio who, left on the ropes by the League’s U-turn, is raising the stakes in an effort to secure a way out. He is completely reneging on his ‘normalization’ process so as to win back more extreme voters and avoid (in vain?) being replaced by the more bellicose figure of Alessandro Di Battista. These internal considerations explain why things got heated so quickly, with calls for the President to be impeached. The Constitution provides for impeachment for high treason (not applicable in this case) and for breach of the Constitution (which M5S would like to invoke). In suggesting that the President obstructed the formation of a democratically elected government, M5S seems to have forgotten that the Italian Constitution provides for the necessary convergence between the two positions and the two powers during the process of forming the Council of Ministers, and that the President was acting in accordance with the full powers conferred upon him by the Constitution. As such, it will be difficult for the Movement to have the legitimacy of this accusation recognized by the parliamentary committee, which must approve it by a majority vote, before it is brought before a joint session of Parliament for a secret ballot requiring an absolute majority. The Constitutional Court (together with 16 additional judges drawn by lot) will then have to make a ruling, which will not be subject to appeal. The motion, which for now has the support of M5S and far-right party Fratelli d’Italia (a member of the centre-right coalition together with the League and Forza Italia), would not secure a majority vote. It is interesting to note that the League has so far refrained from supporting this renewed attack on the institutions. This stance enables it to leave open the path to electoral reconciliation with Forza Italia, after the latter’s leader Silvio Berlusconi openly took President’s side.

What happens now?

The President was quick to propose an alternative and, at the time of writing, has appointed Carlo Cottarelli, former head of the IMF and former Commissioner for the review of public spending. This technocratic Prime Minister will have a hard time securing the confidence of Parliament. His mission will be to lead Italy until the next election (probably in September) while trying as far as possible to reassure the markets with a government tasked with managing the country’s day-to-day affairs, but with the possibility of passing a few laws to cut public spending. This will be all to the good if a new anti-establishment alliance with an expensive programme were to emerge at the next election.

It will, however, be hard for the League to pick up the pieces with M5S: distrust will be running high after this U-turn. And at the same time, M5S has no alternative but to join forces with the League if it wants to return to power. But even with its gains in the polls (now at 25%, compared with 18% at the election), the League will still be stuck with being junior partner in a majority with M5S. As for its return to the centre-right coalition, the League will also have to reckon with Forza Italia’s growing mistrust. And if the election result is secured only at the expense of Forza Italia, the centre-right coalition will not have a majority.

Meanwhile, the election campaign will be bloody. We foresee a hardening of the tone, notably around two issues that did not feature in the previous election campaign: the attack on national institutions (with a view to ushering in a Third Republic based on a weakening of intermediated democracy and checks and balances) and membership of the single currency. Noise will prevail over real signals over the next few months, but ultimately many ambiguities will need to be cleared up in relation to both manifesto commitments and alliances. In the meantime, investors will lack an anchor point for their expectations and, although reassured in the short term by the figure of Cottarelli, will be much more risk-averse on Italy.

Paola MONPERRUS-VERONI, Group Economic Research

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