What to expect from Italy’s new government

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Far from a rupture, Italy will get more of the same under its new prime minister Paolo Gentiloni. (AFP / Getty)

Consider Italy’s new government renzismo without Renzi.

A week after Matteo Renzi failed, in spectacular measure, in his efforts to win Italian voter approval of his ill-fated referendum on political reform, Italy has a new prime minister after consultations between Renzi, other political leaders and Italian president Sergio Mattarella.

With no more than 15 months (and likely far less) until the next general election, Italy’s new premier Paolo Gentiloni will lead a government that looks much like the one Renzi led until last week — one dominated by the centrist and reformist wing of Italy’s center-left Partito Democratico (PD, Democratic Party).

Given that the Democrats and their centrist allies retain a majority in the lower house of the Italian parliament, the Camera dei deputati (Chamber of Deputies), it was almost certain that Mattarella would appoint someone from the Italian left. It was not certain that Mattarella would turn to a Renzi ally, however, given the longstanding tradition of non-partisan ‘technocratic’ governments in Italian politics. Still, Gentiloni was a colorless Roman aristocrat with an undistinguished political career until his sudden ascent to foreign minister two years ago. He replaced Federica Mogherini, who departed Renzi’s government in 2014 to serve as the EU high representative for foreign affairs and security policy. Today, Mogherini remains a rising star who may yet eclipse even Renzi from her perch as Europe’s top diplomat.

Gentiloni, who hails from Roman nobility, began his career in journalism, switching to politics in the 1990s as an ally of Francesco Rutelli, a former centrist mayor of Rome from 1993 to 2001. Both of them served in the short-lived government of Romano Prodi from 2006 to 2008; Rutelli as deputy prime minister and culture minister, Gentiloni as communications minister. In the center-left primary to determine the party’s candidate in the 2013 Roman mayoral election, Gentiloni finished in third place with just 14% of the vote.

Despite strong marks for his time as foreign minister, no one expects Gentiloni to remain prime minister longer than the next election, no matter who wins.

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Gentiloni, instead, looks more like a caretaker who will lead the government through rough months ahead while Renzi licks his wounds back home in Florence and prepares for the next election.

Perhaps most consequentially for Europe (and global markets), Gentiloni’s cabinet retains Renzi’s finance minister Pier Carlo Padoan, himself seen as a potential successor to Renzi. Other key ministers retained include defence minister Roberta Pinotti and justice minister Andrea Orlando, while Angelino Alfano, previously interior minister, will assume Gentiloni’s new role as foreign minister.

Italian banks on the brink

With his confidante running the government, Matteo Renzi is now free to start crafting his own political comeback from the sidelines. (Facebook)

Gentiloni and Padoan will turn most immediately to efforts to calm markets about Italy’s tottering banks and, in particular, the Banca Monte dei Paschi di Siena (MPS).  Increasingly, it seems likely that the bank, the world’s oldest (dating back to 1492, will require a bailout from the government, potentially angering taxpayers. Potentially, the government might also require a ‘bail-in’ of the bank’s investors, potentially angering Italy’s capital class. Other Italian banks in need of capitalization may come in for the same treatment. Essentially, Italian banks today find themselves in much the same position as American banks in 2009 — undercapitalized and sitting on far too many non-performing loans. While the U.S. bailout in 2008 and 2009 was far from popular, in today’s climate, in a country like Italy, where joblessness and listless (or negative) growth have become endemic, a bailout could be far more toxic.

Renzi may believe that, by leaving such unpopular steps to Gentiloni and Padoan, he can emerge later in 2017 or 2018 for a comeback — not unlike Silvio Berlusconi, himself forced from office twice, despite dominating Italian politics for nearly two decades.

That may be too clever by half.

No one is going to suddenly forget that the Democrats have held power since 2013, nor that Gentiloni will be the fourth consecutive prime minister without a clear electoral mandate from Italian voters. (Mario Monti took power from Berlusconi in 2011 as a technocratic leader; Enrico Letta emerged after the 2013 elections after playing only a minor role in the 2013 campaign; and Renzi himself took power after winning the PD leadership and pushing Letta aside months later in early 2014).

Moreover, while its founder Beppe Grillo may still be too much a comedian for Italians to take seriously as prime minister, voters certainly take his nationalist and anti-austerity Movimento 5 Stelle (M5S, the Five Star Movement) seriously. Roman voters, after years of grievances and corruption on both the Berlusconi-led right and the Renzi-led left, elected a Five Star mayor in attorney Virginia Raggi in June. Though no one expected Raggi to clean up Rome overnight, her administration has been wracked by scandal and incompetence in its first months, and that could bounce back on Five Star if voters feel that the anti-establishment populists are no better than Italy’s political elite.

Devising a way out of the referendum trap

At the age of 30, Luigi Di Maio hopes to outdo Renzi as Italy’s youngest prime minister. (Facebook)

Increasingly, Grillo is ceding the spotlight to Luigi Di Maio, a 30-year-old from Napoli who is more moderate than many of the Five Star deputies and who is rapidly becoming the presumptive prime minister and unofficial leader of the Five Star Movement. If the group succeeds in taking power, certainly, it will be Di Maio more than Grillo or Raggi in charge of setting policy.

That has the rest of the Italian political elite scrambling to bury Italy’s new election law, known throughout the country as ‘Italicum.’

Gentiloni’s government may yet have to devise a fresh election law solution for Italy. The new law, which remains under review at the Italian constitutional court, doesn’t fully work without the reforms that failed to pass in the referendum earlier this month. The law’s legal limbo is one of the reasons that Mattarella appointed a new prime minister rather than call snap elections. If the constitutional court strikes down Italicum, Italy will revert to its old and unwieldy system, where the two legislative chambers are determined by different processes (the lower house has a ‘winner’s bonus,’ while the upper house is based on regional proportional representation) and by different voters (you have to be 18 to vote for the lower house, 25 to vote for the upper house).

So while the Democrats hold a majority in the lower house, they do not enjoy a majority in the Senato (Senate), the upper house. That complicated Renzi’s efforts to effect reforms in just about every major policy area, from same-sex unions to liberalizing the Italian labor market to devising a new electoral law. Indeed, the difficulties that Renzi faced in the Senate are one reason he hoped to streamline the Senate’s numbers from 315 to 100 and reduce its power in his failed referendum bid.

Nevertheless, if Italicum stands, it will guarantee one party control of the lower house. Under the law, if a single party wins at least 40% of the vote, it will win 54% of the seats in the lower house automatically. If no party clears 40%, a second round runoff will determine the winner.

Polls show today that the Democrats and the Five Star movement each command between 30% and 32%. So under Italicum, there’s a real chance that the Five Stars could form a new government after the next elections. Given Grillo’s determination to hold a referendum on euro membership and roll back what limited reforms Italy’s government has enacted since 2011, that is a prospect frightening many Italians and Europeans alike. So if the court doesn’t strike down Italicum, Gentiloni’s government is likely to push a new election law through the Italian parliament, though its chances of success will not necessarily be automatic.

A race to define the Italian right

Center-right leader Angelino Alfano is Italy’s new foreign minister. (Facebook)

Gentiloni begins his premiership, therefore, as both the Democrats (including Renzi, from the sidelines) and the Five Star Movement prepare for a likely election in 2017 or early 2018, the center-right remains in a state of flux.

Berlusconi’s once-strong Forza Italia has fallen in polls behind its one-time junior partner, the anti-immigrant Lega Nord (Northern League), which has attracted greater support in the wake of the Syrian refugee crisis under the more hard-right leadership of Matteo Salvini, who has aligned his party away from the business-friendly center-right and toward the French far-right leader Marine Le Pen, US president-elect Donald Trump and Russian president Vladimir Putin.

Alfano’s promotion to foreign minister may also boost the Area Popolare (AP Popular Area) coalition that he leads, which includes what remains of Italy’s centrist Christian democrats. Alfano, once a Berlusconi protege and a former justice minister who helped craft legislation to shield Berlusconi from prosecution, broke with his mentor in 2013. While Forza Italia and the Northern League sit in opposition, Alfano’s coalition and a band of centrists provided support to Renzi (and will now provide support to Gentiloni) in the Senate.

Alfano, an interior minister who has struggled with a wave of refugees from Syria, Eritrea and elsewhere, isn’t exactly beloved among Italian voters. But a higher-profile role for him could force a fresh look at someone who hopes to keep the Italian right firmly in the moderate center.

Do not, however, count out Berlusconi. He’s made countless comebacks since storming to the center of Italian politics in 1994. Remember, too, that even after he was pushed out of office in the 2011 sovereign debt crisis, he led his party nearly to victory in the 2013 elections. It would be a mistake to count him out for 2017, too.

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