Judy Asks: Can Italy Overcome Its Dysfunctional Politics?

As of February 27, 2013, the answer seems to be “no.”

When Italians went to the polls last weekend, they acted as follows: 25 percent did not vote at all. Of those who did, 25 percent voted for the Democratic Party (PD), 22 percent voted for Silvio Berlusconi’s People of Freedom (PdL) party, and a further 25 percent voted for comic multimillionaire Beppe Grillo’s Five Star Movement (M5S), whose anti-euro and antiestablishment rhetoric closely resembles Berlusconi’s speeches of twenty years ago. Mario Monti barely got 8 percent of the vote, having lost his allure as a technocrat outside the party system.

Monti and PD leader Pier Luigi Bersani are the real losers. Unfortunately, the PD is the only real party left in Italy, i.e. a party that democratically elects its leadership. All the others were set up with the sole purpose of supporting their founder.

Yet the PD lost a golden opportunity last fall when its old leadership prevented the young mayor of Florence, Matteo Renzi, from winning the primaries. If Renzi had been chosen as a candidate, neither Monti nor Berlusconi would have run for election, and Italy would finally have had a healthy electoral competition among representatives of a younger generation.

Now, no party has enough seats to govern—though the PD won a relative majority in the lower chamber due to the effects of Italy’s electoral rules. There are three possible outcomes: an alliance between the PD and the PdL; an alliance between the PD and the M5S; or new elections.

Either way, the PD is bound to pay such a huge price that it risks disappearing. That is, unless Bersani resigns along with the entire old PD leadership and leaves a younger generation to agree on a number of limited reforms before fresh elections in a year’s time, at the latest.

But in Italy, as we know, only popes resign.

Unfortunately, Italy’s election results point to more, not less, dysfunctional politics.

To a world feverishly interested in whether the eurozone’s third-largest economy will be governed and governed well, the Italian elections convey the following messages:

• Mario Monti failed to convince citizens that the policies of austerity and structural reforms are the right response to the crisis.
• Angela Merkel—and eurozone leaders more broadly—failed to convince Italians that Europe was doing its part in dealing with the dysfunctional institutions that underpin (if that is the word) the single currency.
• Italians have lost confidence in their political class, as signaled by the dramatic advance of Beppe Grillo’s protest movement and the sharp fall in voter participation.
• Silvio Berlusconi—however discredited he may be in the eyes of Merkel and Wolfgang Schäuble—remains a powerful force, combining control of the media and immense political guile.
• The front-running center-left coalition, led by the well-intentioned but lackluster Pier Luigi Bersani—a former communist with a large labor-union following—elicits suspicion from some people and only lukewarm support from others.
• Italy’s complex electoral system did not help: its national first-past-the-post system for the chamber of deputies (the lower house) combined with the regional first-past-the-post system for the equally powerful senate (the upper house) to produce a hung parliament.

Scrounging for crumbs of comfort, I found three.

First, any governing coalition, whether temporary or long-lived, will have little room to deviate from Monti’s course without eliciting a massive response from the markets in the form of surging spreads. Italians have already lost their sovereignty in economic policy, they just haven’t realized it yet.

Second, maybe—just maybe—the election result will shake eurozone leaders out of their recent extraordinary complacency and quicken the pace on setting up a banking union and a tighter fiscal union.

Third, the election shows unequivocally that Italy is in the midst of a political revolution; one where over half of the electorate is expressing its disgust either by not voting or by favoring a total outsider and rejectionist like Grillo. One day, this rebellion may pave the way for a more responsible and more accountable political system.

Meanwhile, unfortunately, its effects are not pretty to watch, especially for those—like me—who fear for the unity and prosperity of the eurozone and what its breakup might mean for the global economy.

Apparently not! Where else could a comedian win more votes than a seasoned professional? And where else could a discredited politician successfully run against his own record?

The symptoms of dysfunctional politics are clear enough. Beppe Grillo effectively railed against the establishment but provided little by way of substance. And with the surprising exception of Silvio Berlusconi, the remaining politicians spent more time discussing the geometry of possible governing coalitions than the more important question of which policies might actually stimulate economic recovery in Italy. As for Berlusconi’s proposals, they are clearly more popular than realistic: Italy simply cannot spend its way out of the crisis if it does not have its own currency.

So what are the underlying causes of this collective fantasy? Assuming that Italians are no less intelligent than the rest of Europe, the answer lies in the symbolism of a collective rejection of rational analysis and discredited institutions—national and European.

But if this is the case, we are entering more dangerous political territory than many recognize.

The political stalemate after the Italian vote brings a dangerous element of instability to both the country and the eurozone. Without a strong majority, the Democratic Party (PD) needs to enter into an alliance with Silvio Berlusconi, Mario Monti or the surprise winner of the elections, Beppe Grillo’s Five Star Movement (M5S).

The greatest risk is losing time while waiting for new elections, as happened in Greece in 2012. Without a stable government, the process of structural reforms that the country needs to boost its stagnant economy will slow down. At the same time, the fiscal consolidation that Mario Monti’s government undertook may grind to a halt.

Pressure from international investors is already high and will increase further in the coming days as uncertainty persists over Italy’s governability.

It is frightening to see how much approval Grillo gained for his antiausterity, antieuro position. The M5S is now the largest party in Italy, despite its populism. In addition, the comeback of Silvio Berlusconi’s Popolo della Libertà (PdL) is a menace to eurozone stability.

Italy has regained its role as the “sick man of Europe” and the country’s rejection of austerity policies may even hinder European integration.

What will happen now? It is likely that a national unity government, backed by Italian President Giorgio Napolitano, will be formed to avoid the worst-case scenario: a total government collapse that could hit the whole eurozone.

Unfortunately, the road ahead is long and Italy cannot delay its commitments.

The situation looks bleak.

The only way out seems to be some sort of coalition between Pier Luigi Bersani’s center-left party and Silvio Berlusconi’s center-right to deny the populist Beppe Grillo from gaining further momentum. Yet for the past twenty years the left and Berlusconi have fought a bitter war. Cooperating in a cabinet will seem alien to them.

On Tuesday, the Italian markets plummeted in Milan. Shares in the main bank, Intesa Sanpaolo, lost 10 percent. Spreads against Germany’s bonds jumped once again.

Some analysts hope that there may be a statesman hiding behind Grillo’s grotesque comedian ways—somebody ready to prod Italy’s parliament into passing reforms and anticorruption bills. Grillo is untested but I doubt that he’ll play the diplomatic card. He and his right hand man, Gianroberto Casaleggio, will simply continue to let the old political class stumble along while they gain even more voters’ trust.

Sadly, our hapless leaders have put us in a difficult corner. Savvy old President Giorgio Napolitano has only a few weeks left in his term in office. It is too late for him to pull something out of a hat.

Will cooler heads prevail? I wouldn’t bet on it today.

A political tsunami has swept over Italy.

Bipolarity is gone; Italy emerges from the elections of February 24–25 with a fundamentally fragmented political scene. Due to Italy’s anomalous and dubious electoral law, the center-left coalition enjoys a comfortable majority in the lower house. But in the senate, where the first-past-the-post premium is allocated regionally, the center has won a mere 120 seats, well short of the 158 needed for a majority government.

Italian spreads soar, the euro plummets, and across Europe and the Atlantic fears emerge over the possible global fallout of the election results. No one can afford Italy to fail, yet the specter of the country becoming ungovernable looms large.

One option is to return to the polls in the hope that many of the disaffected young voters will come to their senses. But were snap elections to be held now, there is a tangible risk that Beppe Grillo would win in a landslide, or—even more dangerous—that Silvio Berlusconi would make another comeback.

The only alternative is for center-left leader Pier Luigi Bersani to form a minority government which would probably last little over a year, the minimum needed to secure the reforms that country desperately needs.

What are Bersani’s options? Berlusconi has already started to woo the left, calling for a grand coalition. But if Bersani gives in to this temptation, the result would be catastrophic. A grand coalition would ring the death bell for the center-left and resurrect Berlusconi.

It would be better to approach Grillo’s Five Star Movement. Bersani has already aired this option. Should the former comedian reconsider his initial “no,” based on real concessions to his movement, the responsibility of governing would be borne by the center-left and Grillo together. This is the only path that, together with an overhaul of party structures, offers the Democratic Party any hope of reversing the decline that many have watched in sorrow over the last two decades.

A few words of disclosure to begin: I am half Italian, I cast my vote last Sunday, and the vote was not for Silvio Berlusconi. In addition, I have been shell-shocked by the results, which is likely to obscure my thinking. Finally, I am writing in a very personal capacity, and might change my mind during the next hour.

That said, a country in which someone like Berlusconi can continue to mobilize such consensus cannot simply be labeled as either right-wing or vulnerable to populist promises. One third of Italians have no sense of community spirit and think only about their immediate, private interests.

This is dysfunctional. A country whose political spectrum includes an “antipolitics” grouping based largely on spontaneous mobilization rather than ideological or social interests is not unusual. That it is the largest party is a symptom of Italy’s current malaise.

Last night, signs of potential change emerged. Pier Luigi Bersani proposed an agenda for a future government, and Beppe Grillo’s Five Star Movement (M5S) may yet support it. The plan would address—at least in theory—precisely those failures that have led to such a sweeping antipolitics movement. If the next government were to seriously tackle corruption and finally curb the conflicts of interest between business, politics, and the media, that would address some of the root causes of today’s problems.

No one knows the new M5S members of parliament; they don’t even know each other. So the plan is a gamble. But it is just possible that a bizarre—even surreal—alliance between Bersani and Grillo might open up new avenues for change. Interesting times lie ahead.