Italy: Will the Government Fall (Again)?

Amid a global pandemic and with 209 billion euros to be spent to counter the effects of the economic downturn (-9.9% GDP), the Italian government is facing yet another crisis. Will this lead to the third change in the executive in less than three years? Or will the majority find a compromise before it is too late?

Giuseppe Conte’s government is under pressure from all parties to review its management of the 209 billion euros lent to Italy by the European Union through the “Recovery Fund”. 

The criticism has originated from the party “Italia Viva”, a junior, yet influential partner within the executive. Its leader, former PM Matteo Renzi, has been explicit in his intention: either Conte makes a U-turn on some of his decisions, or the government will fall. Whether this is a bluff or not, it is hard to say. 

The contentious points are two:

The governance of the Recovery Fund: Conte has proposed a centralized administration under his supervision, with the help of two ministers and an independent task force. Renzi is instead asking for a more central role of Parliament. 

The allocation of resources: Renzi has recently expressed concerns about the current spending plans. He is particularly unsatisfied with the 9 billion euros for the Health Service, which he regards as insufficient. 

Other contentious points are Renzi’s support for the “Ius Culturae”, i.e. the granting of citizenship to people who attend the full cycle of compulsory education, and the governance of the Secret Services, which is also in the hands of the PM. 

Other parties in the coalition (like the center-left Democratic Party and the anti-establishment Five Stars Movement) seem to agree with Renzi on many points but are more reluctant to put an end to the executive: the future of the Conte government seems uncertain. 

What are the three possible scenarios that we can expect to see in the following weeks?

Matteo Renzi, former PM and leader of the centrist party “Italia Viva” 

 

Scenario 1: New Elections

This is the most unlikely scenario. The wild card of a new general election is too risky for everybody. 

Within the government, Renzi’s party and the Five Stars are currently struggling in the polls, and an election could lead to a right-wing majority – an outcome that every party in the executive wants to avoid. Moreover, a recent constitutional reform has led to a reduction in the number of MPs, which would mean that many current Senators and Deputies would not be re-elected. 

Even within the opposition, the populist right-wing leader Matteo Salvini seems to be cautious and is now asking for a center-right “transition” government which could “accompany” the country to the next elections. This could be due to his fear of his ally Giorgia Meloni, leader of another right-wing populist party (Brothers of Italy), who is currently rising in the polls at Salvini’s expense and asking for new elections immediately. 

Within the executive, the center-left Democratic Party is explicitly threatening Renzi: if the government falls, a new one will not be formed and a general election will be called. Nevertheless, this is probably a bluff which has already been called by several analysts. Moreover, the decision to call a GE is in the hands of the Head of State, Mattarella, who will probably try to find an alternative majority in Parliament. 

The impact of a GE would also harm investors’ confidence. It would delay the presentation of the plan for the Recovery Fund to the EU Commission, dragging its resources into an electoral campaign in which every party will use it opportunistically to make promises to the electorate. Moreover, the government in charge would lose its legitimacy while dealing with the current crisis. 

Assessment: Unlikely. 

Scenario 2: Compromise (+ Reshuffle) 

The government is not new to moments of crisis started by Matteo Renzi. He has already threatened the executive twice, only to then settle for a compromise. 

In this case, the issues discussed do not seem incredibly divisive. Moreover, Matteo Renzi is not alone in his internal fight against Conte. The silent critics are many, and Renzi might exploit them to gain a compromise. 

A change in the allocation of resources will probably be one of his main achievements, with more investments in the healthcare system. Renzi might also obtain a less centralized governance in the hands of the PM. Still, it seems unlikely that Conte would concede to Parliament the full administration of the Fund. 

Compromise is the best outcome for investors: if it is found soon, it could avoid delays in the presentation of the Recovery plan to the EU Commission, and it would also be a signal of the resilience and stability of Conte’s premiership. 

A reshuffle could also accompany a possible compromise. Renzi has explicitly said that he is not seeking more “seats” in government for his party. However, that does not exclude the possibility of some ministers from other parties being sacked. It would not be surprising, considering that some government members are not particularly appreciated by Matteo Renzi. 

If the reshuffle involves more than one minister, it could be possible that we will see a transition from a Conte II to a Conte III, with Renzi as Minister for Defence. This could cause some delays with the plan for the Recovery Fund but, if done swiftly and with the same majority, it should not create too many problems. 

Assessment: Highly Likely 

Scenario 3: New Technocratic Government 

Some analysts suggest that the problem is not Conte’s governance, but his personality. The aim of this crisis would therefore be that of removing him from power. 

Within the government, Renzi has been threatening this quite explicitly, calling for a new executive if things do not change. It is still uncertain which majority would support it. The options are: 

The current center-left majority with a new PM; 

A “center-right” coalition with the support of Renzi and at least 20 defectors from other parties; 

A “national unity” coalition with most parties supporting a “technocratic” cabinet. 

There are clear signals that the Head of State, Sergio Mattarella, is preparing contingency plans for this last scenario and Marta Cartabia, former President of the Constitutional Court, has been indicated by many newspapers as the favorite choice of the President for the role of PM. Some politicians (like Renzi) are evoking the name of former ECB President Mario Draghi, but it is unlikely that he will accept considering that his eyes are pointed at the chair of the Head of State, which will soon be empty and for which he has no serious competitor.

Let’s also not forget that, if the problem is Conte himself, then the parties will need to eliminate him before August. This is due to the beginning of the “white semester”, the six months which precede the elections of a new Head of State, and in which Parliament cannot be dissolved. 

A new technocratic government could delay the Recovery Fund, due to the necessity of finding a new majority or keeping the current one together. Moreover, during the formation of the executive, the 209 billion euros from the EU could become the main object of the negotiations, being susceptible to partisan interests. 

Assessment: Likely

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Italy: Will the Government Fall (Again)?