Strategic observation

News Analysis: Political uncertainty predicted for Italy in 2018, but growth not at risk

2018-01-13 06:09:25 (Beijing Time)


by Alessandra Cardone

ROME, Jan. 12 (Xinhua) -- Italy's economic recovery would not face major risks in 2018, although the country was likely to be dominated by political uncertainties, notably by elections in March, according to a report unveiled on Friday.

In a multi-authored paper titled "The World in 2018", Bologna-based think-tank Nomisma noted three political subjects appeared as key runners in the Italian campaign ahead of the vote.

The contenders were a center-right coalition, more or less cohesive; a center-left front dominated by the Democratic Party -- which ruled the cabinets in the last five years, and was now losing ground -- and anti-establishment Five Star Movement, which has always taken pride in refusing electoral alliances.

The country's agenda for the current and the next few years would, of course, "depend on the nature of the government that will emerge," the report noted.

"The division of the electorate into three major components will make it impossible to form a homogeneous government," said Piero Ignazi, comparative politics professor with Bologna University, and author of the Italian chapter.

Out of necessity, one of these components should be pushed to forge a coalition in order to form a cabinet, but the expert forecasts political instability might prevail.

"To date, this solution seems impractical, because supporters of each party consider such alliances to be out of the question," Ignazi said.

Yet, the progress achieved in latest years -- and especially the current, moderate growth after the country's worst post-war recession -- would not be in jeopardy.

"We are experiencing a quite unusual phase, in which many countries suffer from uncertainty and political void, even unexpected ones such as Germany," Andrea Goldstein, Nomisma managing director, told Xinhua.

"Nonetheless, economy seems to be going well despite this vacuum, and it may be the same for Italy," he added.

The report did warn that whatever the outcome of Italy's next elections, some priorities would remain -- "from the weakness of the recovery and job creation to rising inequalities... to the demand for efficiency and good governance."

All of these issues would not require a stable or strong government, but simply a "serious" one, according to the authors.

"Considering that the chances of a clear outcome of the vote are pretty low, an uncertain result (and, consequently, a possible coalition government) may be better for Italy than a victory of forces seen as 'unreliable' by international markets," Goldstein explained.

A crucial factor nurturing the faith of international investors in Italy is its capability and political will to pay its public debt, which amounts to some 2.29 trillion euros (about 132 percent of gross domestic product), and is the euro-zone's second largest after Greece.

"For example, those forces putting Italy's euro-zone membership in doubt, or leaving this issue unclear in the campaign, would be seen as irresponsible by international markets," Goldstein pointed out.

His remark here seemed to point at the two parties that have openly opposed the euro so far: right-wing Northern League -- part of the center-left coalition, and populist Five Star Movement (M5S), which appears the most popular force in opinion polls.

As recently as last week, however, the M5S has mitigated its stance, and its leader Luigi Di Maio has declared it was "no longer time for Italy to leave the euro."

Italy's Central Bank projected the country to grow 1.6 percent in 2017, 1.4 percent in 2018, and 1.3 percent in 2019-2020, while the European Union (EU) Commission forecast 1.5 percent, 1.3 percent, and 1.0 percent respectively.

Overall, such projections did not need to be revised downward, despite the chances of instability to come, according to Goldstein.

He explained all major economies were currently posting relatively high growth rates, and the positive conjuncture could not but help Italy as well.

"The only real question is whether political uncertainty might turn into financial uncertainty," he warned. "If an inability or unwillingness to repay the debt emerges in Italy, then the economic results the country has achieved so far might be at risk." (1 euro = 1.21 U.S. dollars)