“The Five Star Movement “tsunami” an electoral triumph” by George Lombardi (posted with the author’s permission):
ROME — The results of Italy’s historical elections confirm the desire of a great many Italians who expressed their desire for change.
Almost one third of the vote went to new actors of the complex Italian political system.
Two great surprises characterize this election: first, the “tsunami” of the comic-turned-political agitator Beppe Grillo [pictured above] won a substantial 25% in both houses of the legislature; the second is the rebirth of former premier Silvio Berlusconi (PDL), coming back from 12.8% a few months ago to almost 25% (almost 30% if you add the coalition party Lega Nord), almost gaining the upper hand in the powerful Senate.
The leftist coalition (PD) won by less than 1% in both chambers, but they expected a greater result, while Mario Monti, the former PM and so-called technocrat, received only 9% , enough to be a decisive factor in the search for a historical compromise.
Obviously Italy is heading toward a total gridlock. Everyone agrees that new elections may come as soon as one or two years from now.
What are the practical results of the vote?
As far as Italy’s relation with the European Union almost two thirds of the voters want a more independent stand when facing the EU and Germany, Grillo is strongly anti-Europe, just like the Lega Nord, and Berlusconi has openly criticized Germany’s dictates and forced economic austerity measures. Most Italians moderates, young and old, favor Italy’s presence in the EU community, but they dislike the oppressive German and French power in all aspects of legislation and economic policies. There is no doubt that a new era has dawn in Italy.
Investors are analyzing the outcome of the Italian election. The people’s choices may trigger a sell-off in stocks and bonds and renew concerns about the euro if the three main parties cannot bring a stable government.
The rise of anti-establishment comedian Beppe Grillo’s 5-Star Movement and the impressive comeback of center-right leader Silvio Berlusconi have cast doubt over the leftist coalition (led by Mr. Bersani) ability to govern even if he forms a coalition with the centrist party of outgoing technocrat Prime Minister Mario Monti.
But next question for the market will be how viable the winning coalition will be and whether it is able to continue with much-needed reforms, first of all the way parties are allowed to participate in the general elections.
Grillo has indicated a will to change the outdated and often confusing election laws. And while both left and conservatives have often agreed on changing the electoral system, they could never find a compromise.
The second most important reform is the one related to taxation and finance. Italy needs a great input of fresh capital, but the austerity measures mandated by Germany limits greatly the options of past and future Governments.
The yield gap between 10-year Italian and German bonds stood at around 288 basis points on Friday, nearly half levels seen in late 2011, when Monti was called in to bring Italy back from the brink of a possible default that would have sunk the EU. But Italian borrowing costs are still far too high, Italian bankers and businesses say.
It is true that Italy needs political stability and a more business-friendly economy, but it also true that a large spread is unsustainable. It must go down or it will creates serious problems for the Italian economy. Analysts are forecasting Italy’s economy to shrink by 1 percent in 2013, worst than previously expected and a painful reminder of the challenges awaiting Monti’s successor.
Expect a new general election within 12 to 18 months should the new government turn out to be a very weak one. But the current result demonstrate the Italians’ unwillingness to endure more tough reforms.
The decisions Italy’s government makes over the next several months promise to have a deep impact on whether Europe can decisively stem its financial crisis. As the Eurozone’s second-largest economy, its problems can rattle market confidence in the whole bloc and analysts have worried it could fall back into old habits.
The only hope is that Italian politicians, many now in their early 30’s, will find a common ground, focusing on programs and on goals, forgetting ideological differences, and by example lead a group of European nations like Spain, Greece, Portugal and others out of the economic and political crisis and in a new, more egalitarian relationship within the European Community.