Italian Election Populist Deadlock A Real Problem for Troubled Italy

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Luigi Di Maio (left) and Matteo Salvini Photo Courtesy of Dagospia

Last week you saw the results of the long-anticipated Italian election deliver a dreaded deadlocked outcome to the country. No single party or faction won a clear and convincing majority. The president of Italy has three months to decide if any of the two leading populist parties will be able to agree to form a working government. If they can not, the country will head back to still more elections and uncertainty.

This comes at a time when Italy's financial problems require urgent attention and concrete action, not indecision. It is yet another geopolitical reminder for you to protect your investment and retirement portfolios with the precious metal. Gold makes sense in an IRA. Now is a good time to think about a Gold IRA rollover.

Results of the Italian Election

In a surprise result, more than half of Italian voters opted for anti-establishment, populist parties in the election. The largest winning party with more than 32 percent of the vote proved to be the Five Star Movement led by Luigi Di Maio. The largest faction with around 37 percent of the vote included leading party the Northern League headed by Matteo Salvini. While the Five Star party is heavily Euro-skeptic, the Northern League is also steeped in anti- immigration ideology.

Despite the fact that the two parties individually topped fifty percent of the vote results, neither of them alone have the seats in Parliament to rule. Unfortunately for Italy and its significant problems, neither party will command a majority of the 630 seats in the lower house of parliament. Italian Interior Ministry data reveals that Five Star alone will take around 227 seats. Meanwhile the Northern League led center-right will garner about 265 seats.

Italian rules require a 316 member majority to rule. So far, neither group has been able to extract any promises of cooperation from the real losers of the vote, the outgoing ruling PD Democratic Party led by Matteo Renzi. This graph explains the dilemma created by the vote results:

In order for either group to rule, one of two scenarios will have to materialize. In one scenario, the two main rivals Five Star and Northern League would have to come together to form a coalition. In another unlikely outcome, The losing Democratic Party center-left would have to support one of the two groups. We'll consider the problems with either possibility in more detail.

Five Star Movement and Northern League Each Believe They Won

The problems with a coalition between the two leading anti-establishment parties became clear shortly after the vote results emerged. Di Maio as the head of the Five Star Movement called his rivals “arrogant.” He argued the other parties needed to quit scheming for power so that his leading single party could start working on Italy's numerous problems:

“The importance of this vote is immense and marks a watershed. The citizens decided to trust us, giving us a historic result. Now cannot be the time for the start of puppet theaters, of palace games and strategies worthy of House of Cards. Politics must stop being arrogant and start to be humble.”

One of the main stumbling blocks to a Five Star and Northern League alliance in parliament has centered on DiMaio's earlier refusing to consider sharing out ministerial posts in any coalition. He has backed this argument up by pointing to the fact that his party was the only one that secured support throughout Italy. The other parties are also opposed to his pledge to increase government spending for the Italian poor with the country's debts so high already.

Meanwhile Norther League leader Salvini had been willing to hold cooperation talks with Five Star if his coalition did not secure a majority of the vote. He quickly changed his tune when his party won the most votes in the center-right coalition though. Fellow center-right block member and former Italian Prime Minister Silvio Berlusconi has now publicly endorsed Salvini's claim to lead the country himself. Berlusconi pledged to honor their coalition agreement with:

“We will now loyally support Salvini's attempt to create a government.

It means that there is no longer any incentive for the wealthy Italians-supported Northern League to agree to be junior coalition partner with the poor Italians-backed Five Star Movement. They see their own center-right block as the winner of the election.

Democratic Party Leadership Will Not Willingly Work With Either Anti Establishment Party

This would seem to make the Democratic Party of Matteo Renzi the kingmakers in a new government. Yet Renzi has ruled this out since the humiliating election results became known. He insists that his party become the opposition to a new government in protest to their worst electoral results in PD history. It would seem to eliminate a junior coalition between the Democratic Party and either the Five Star or the Northern League.

Yet even this stated position is no longer clear cut. Renzi is facing rebels in his own party who claim they will participate in a government led by the populist victors. Those opposed to Renzi's wish to be in opposition state they do not have the luxury of sitting out a government that the troubled nation desperately needs formed.

The League seized on this revolt early and started engaging in informal discussions with dissidents in the Democratic Party. Yet Salvini made it less likely that they will form a coalition with him either when he stated last Thursday:

“I'm not thinking of deals with parties. We are working on a program which we will offer to lawmakers, in parliament. On some points we'll see who gives us a hand and who says no regardless.”

Salvini then went on to discredit the idea of a comprehensive arrangement between the League and either their arch rivals the Five Star Movement or the Democratic Party. This leaves him dependent on from 35 to 40 rebellious lawmakers in the Democratic Party to support him. Yet even this crossing over would mean he lacked at least 10 votes to secure his party's government. Many of these same PD lawmakers have already ruled out working with the Five Star Movement.

Italian President Raises the Bar for a New Government

In the end, the mess that is the Italian election may come down to choices made by Italian President Sergio Mattarella. He has already made it more difficult by deciding that to form a new government, either populist party will have to demonstrate vote of confidence support in both parliamentary houses.

Naturally a significant amount of time may pass while the various parties spar and attempt to gauge any rival support from the Democratic Party. At the earliest, Mattarella would not make a selection for who can have such a confidence vote until at least April. The next key date in the Italian election process will be the reconvening of parliament on March 23rd. This is when they must choose their two speakers.

Professor of Constitutional Law Massimo Luciani at Sapienza University in Rome explained the president's potential choices:

“Mattarella has an unpredictable path ahead, he's going to need time. He could name the head of the biggest coalition, or of the biggest party. Or he could do neither of those and ask someone, perhaps the new speaker of the Senate or the lower house, to try to find out if there can actually be a majority.”

This means that the uncertainty could stretch until June. At that point if a majority still can not be produced, the president would have to dissolve the new parliament so another election could be called.

Gold Can Protect Your Portfolio from the Contagion Effects of Italian Problems

Meanwhile Italy's banks have around $250 billion in toxic debts on their books. This could still spark a banking crisis that required massive bailouts in order to stop regional and global contagion. Yet the country has the second highest level of debt in the European Union and so lacks the resources to effectively intervene alone.

In times of financial and geopolitical crisis like this for the third largest economy in the Euro Zone, you need gold to protect your retirement portfolio. The good news is that you can buy gold in monthly installments now. You are also able to choose from top offshore storage locations for your gold IRA thanks to a relaxing of IRS Gold storage options.

David Crowder
David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.

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