Italy: New electoral law increases chances of early elections – HSBC

In the coming month, Fabio Balboni, European Economist at HSBC expects Italian Parliament to approve a new electoral law based on the German model which is effectively a proportional law, although the 5% entry thresholds should reduce political fragmentation. He further adds that with an electoral law in place, elections in the autumn would seem more likely than not in his view.

Key Quotes

“Former PM Matteo Renzi, the leader of the largest party in Parliament, expects the Upper House to ratify the new law by 7 July.”

“It might still be hard to form a government

Mr Renzi's PD and the populist Five Star Movement (5SM) remain neck and neck. The PD and centre-right reformist party Forza Italia (FI) might just about have enough seats to form a grand coalition government under the new electoral law. But this will all depend on whether far-right Brothers of Italy (FdI), or one of the centrist or far-left parties, will make it into parliament.”

“Higher chances of early elections

Passing the electoral law would remove one key obstacle to possible early elections, from the normal deadline of February/March next year. According to the Italian press, Mr Renzi would like to have elections on 24 September (Il Sole 24 Ore, 25 May), the same day as in Germany, although he later played this down, arguing that six months do not make a huge difference.”

“Euro membership issue so far on the side-lines

So far the issue of Italy's euro membership has not played a major role in the Italian electoral campaign, which reduces the immediate systemic risks from the upcoming elections to the rest of the eurozone. The parliamentary leader of the 5SM, Luigi di Mario, has said recently that they will only propose a referendum on the euro if the EU refuses to undertake any reforms to its governance (Il Sole 24 Ore, 5 June). However, failure to deliver growth and jobs by a possible grand coalition government could turn people even more sceptical towards the euro and further away from mainstream parties in the future, a risk that should not be underestimated.”