Italy is never far from a political crisis. But the elections set for Sept. 25 will be exceptional even by Italian standards, where 67 governments have taken turns since World War II. Europeans are grappling with an energy crunch and concern that higher interest rates could touch off a panic about heavily indebted countries — like Italy. Then there’s the likely rise of Italy’s anti-immigration right-wing parties and the exit of Prime Minister Mario Draghi, the former central banker who was seen as a steady hand, leaving investors fretting about what’s next.
1. What’s unusual about this election?
It’s the first held in the fall in the country’s history, a time when Parliament is busy drafting the budget law for the following year. The campaign is compressed into two months. It will also be the first time Italy will vote to elect a Parliament with a curtailed number of lawmakers, making competition to win a seat as aggressive as ever. Draghi stepped down after the broad coalition he had been leading since early 2021 dissolved and three of his key allies pulled their support. A skilled technocrat who was navigating the country through an inflationary crisis, Draghi is widely credited with saving the euro when he was head of the European Central Bank.
2. What led up to this?
The crisis was initially triggered by the Five Star Movement, the anti-establishment group that surged to power in 2018 and has been criticizing Rome’s military support for Ukraine. It snowballed into a spectacular set of political moves as Matteo Salvini’s League and Silvio Berlusconi’s Forza Italia sensed political opportunity from fresh elections, pulling out of the coalition and leading Draghi to resign. Other issues driving the split have been how to allocate financial support for Italians hurt by rising prices, how to push through reforms to free up Italy from red tape and boost competition, and changes aimed at making the tax system more fair — all topics likely to drive the campaign.
Though Draghi will remain in office until a new government takes over, his powers have been curtailed. His government will still have the ability to implement reforms essential for unlocking about 200 billion euros ($204 billion) in aid from the European Union and to represent Italy at international events, but his authority as a leading figure in Europe’s response in Russia’s war in Ukraine has been curbed. Draghi’s government won’t be able to pass new and non-essential legislation, and to make new appointments for state-controlled companies except for those strictly necessary. During the coming weeks, Italy’s political scene will be dominated by parties laying out their campaigns and deciding whom they’ll team up with for the vote.
4. Who’s likely to win?
Right-wing parties have the most to gain, and this is also the reason why they were quick to take advantage of the crisis triggered by Five Star. Based on current polls, a rightist coalition is expected to win the most seats, provided its members can stick together. The coalition includes Giorgia Meloni’s Brothers of Italy, as well as the League and Forza Italia, which until recently were within Draghi’s government. Italy’s current electoral law, or legge Rosato, favors parties which are running together, and party leaders are working on which alliances to favor based on cross-vetoes. While the right-wing coalition is clearly defined, how the teams will shape up in the center where a myriad of small but antagonist groups has formed is harder to predict. The Democratic Party is currently against teaming up with Five Star, even though they shared a government.
5. What does this mean for Europe?
The weakness and indebtedness of the euro-area’s third-largest economy risks becoming everyone else’s problem. Until early July, Draghi’s coalition had managed a balancing act of keeping the economy growing after the pandemic and reducing Italy’s mammoth debt, the biggest in the euro area at about one and a half times gross domestic product. Italy’s drama comes as the ECB is tightening monetary policy and raising interest rates, which is raising concern of a recession in the nations that use the common currency. Tensions were raised after the yield on 10-year Italian government bonds breached 4% in June, the highest since 2014. Higher interest rates raise questions about the long-term sustainability of Italy’s debt load amid a stagnant economy and shrinking population.
6. Why are governments so unstable in Italy, anyway?
Most political analysts trace the current era to 1994, when following a series of scandals, Berlusconi rose to power and with him the a current system of political parties. The combination of weak parties associated with a single, charismatic leader and his success, plus electoral laws that force them into broad, uneasy alliances that often splinter is a recipe for political instability. That’s likely to happen again in the upcoming election.
• Here’s a guide to the election landscape as the campaign starts.
• Draghi saved the euro, but Italy’s politics beat him.
• A Bloomberg Economics report on the risks from Italy.
• Why a crisis in Italy brings turmoil for the euro.
• Related QuickTakes on Europe’s bond market fragmentation, Europe’s energy crisis and the 2012 euro crisis. A 2018 explainer on the rise of the Five Star Movement.
• Bloomberg Opinion’s Rachel Sanderson explains how Draghi has left his mark.
• Italy’s divisions are being exposed by the war in Ukraine.
• Here’s why Italy typically doesn’t holds elections in the summer or fall.
More stories like this are available on bloomberg.com