What happened?

This weekend Italy will hold general elections and there is a lot of uncertainty surrounding possible outcomes. A large part of the electorate is still undecided. The last held opinion poll suggests a close race between three blocs: a right-wing coalition of Forza Italia (Silvio Berlusconi’s party) and the Northern League, the antiestablishment Five Star Movement (M5S) led by Luigi di Maio and Matteo Renzi’s center-left Democratic Party. Adding to the uncertainty is the introduction of a new electoral law that could fragment parliament.

What does this mean?

A highly disruptive outcome is unlikely. An improving economy has softened the political debate and the M5S for instance has dropped its plans for a referendum on EU membership. Moreover, it has ruled out a coalition, blocking it from governing. The Northern League still campaigned on such a referendum, but it will need a more pro-EU coalition partner to govern. The Democratic Party would continue European integration, whereas Forza Italia would be most business friendly. With current polls, the latter two might be forced to govern together.

What’s next?

In the short term risks are thus limited. Italy might emerge as France’s partner in reshaping the EU towards a more Mediterranean model as we argued before. But in the longer term, another challenge does emerge. The chance of a hung parliament or a weak governing coalition is high. As such, Italy would follow Germany, the Netherlands, the UK and France as a country with weakened executives and hence governance problems. This would hinder the EU’s effectiveness as well as the capacity to tackle structural domestic problems like youth unemployment, corruption, high debt and sluggish growth.