Prime Minister Mario Monti may tighten his grip on Italian power as voters weary of recession and the debt crisis prepare to punish former ruling parties in local elections.
About 9.5 million Italians are eligible to cast ballots in the May 6-7 vote, providing the first snapshot of the political landscape since Silvio Berlusconi’s government collapsed in November and the Northern League, his former ruling partner, was hurt by a party-funding scandal. Under Monti, Italian 10-year borrowing costs dropped to about 5.5 percent from 7 percent before he took office on Nov. 16.
Polls suggest Berlusconi’s party and the League will lose ground as voters turn to the center-left Democratic Party and Beppe Grillo, a comic-turned-politician campaigning for Italy to leave the single currency and restructure its 1.9 trillion-euro ($2.5 trillion) debt. The results may help Monti, a former European Union commissioner, stay in office until the legislature’s term ends in the first half of next year.
Monti relies on support in Parliament from Berlusconi’s People of Liberty party, the Democratic Party and the centrist Third Way, none of which “wants a change” amid Italy’s fourth recession since 2001, said Robert Leonardi, a politics professor at Rome’s Luiss University. “Monti is going to last” because “if we had early general elections or a fall of the government, the financial markets would go bananas, and who’d want to assume that responsibility,” he said.
Italian bonds, whose yields reached levels in 2011 that prompted Greece, Ireland and Portugal to seek bailouts, had nine weeks of gains through March 9 amid Monti’s push for reforms and unlimited three-year lending by the European Central Bank. Six weeks of losses then followed after Spain abandoned its budget- gap target on March 2. The rate on Italy’s 10-year bond was down 7 basis points to 5.43 percent at 2:51 p.m. Rome time.
About 1,000 Italian municipalities will hold elections starting this weekend, with Genoa and Palermo ranking as the biggest cities up for grabs, according to the Interior Ministry’s website. Run-off votes are scheduled for May 20-21. The semi-autonomous regions of Val D’Aosta and Sardinia stage their elections on May 27 and June 10-11, respectively.
The ballot comes amid a six-month drive by Monti to shield Italy from the sovereign crisis that began in Greece more than two years ago. His unelected government of non-politicians pushed through measures to boost economic growth, which has trailed the euro region’s average for more than a decade, by deregulating services and reducing red tape. He’s also seeking to overhaul the labor market by making it easier for companies to fire workers.
Italy entered a recession in the last quarter of 2011 after the premier pushed through 20 billion euros ($26 billion) of spending cuts and tax increases. Joblessness climbed in March to a 12-year high of 9.8 percent and consumer confidence fell in April to the lowest level in more than 15 years. The government sees the economy shrinking 1.2 percent this year, less than the 1.9 percent decline forecast by the International Monetary Fund.
Elections are a chance for people to express “whether they feel politicians are exercising enough pressure to protect them against the technocrats,” Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London, said by phone.
“The political risk is clearly there, but it’s not elections related,” he said. “Can Monti convince the politicians to rubber-stamp and pass all the structural reforms he’s proposing?”
Italians are losing faith in their traditional political parties, according to an April 17 poll by Tecne for L’Unita newspaper. More than 48 percent of Italians said they wouldn’t vote for any party if general elections were held now, while support for the parties has fallen by half in the past year.
“The parties have failed,” Grillo, the comedian whose 5 Star Movement will present candidate lists in 101 cities, said in a recent blog on his website.
Grillo has called for exiting the euro, and remaining in the EU and defaulting or paying only part of Italy’s debt. His movement would win about 7.3 percent of the votes were a general election held now, a poll by SWG Srl showed on April 20.
That compared with 26.2 percent for the Democratic Party, 25.3 percent for the People of Liberty Party and 6.2 percent for the Northern League, whose founder Umberto Bossi resigned April 5 amid the biggest wave of corruption scandals since the “Bribesville” cases of the 1990s led to the demise of the parties that dominated postwar Italian politics.
Support for the main parties “is lower than for the trade unions and much lower than for the unelected Prime Minister Monti, who still scores over 50 percent despite the austerity budgets,” James Walston, a politics professor at Rome’s American University, wrote on April 23.
While municipal polls are about “local politics,” a Democratic Party victory “may have the consequence of redistributing power within” Monti’s “coalition internally, and the question then becomes who can raise their voice to request certain things,” said Leonardi. The Democratic Party has called for easing measures meant to reduce Italy’s debt of 120 percent of output, Europe’s second biggest after Greece.
Italian bonds were the second worst-performing of 26 sovereign-debt indexes tracked by Bloomberg and the European Federation of Financial Analysts Societies in April, with losses of 1.3 percent after gaining 11 percent in the first quarter. Spanish bonds were the worst performing, down 1.8 percent.
“Development in the euro area and in Italy is impossible with the current fiscal targets,” Stefano Fassina, Democratic Party spokesman on economic issues, said in a statement e-mailed on May 2. Investment funds should be “freed up” for public works in cities that would boost employment, demand and “also benefit the public debt,” he said.
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