Italy’s Bersani May Need Post-Vote Deal With Monti: Scenarios

Below are some frequently asked questions about Italy’s elections that begin tomorrow and conclude the following day.

There are about 51 million citizens eligible to vote for the Chamber of Deputies and about 45 million for the Senate, because of different minimum-age requirements. Polls are open 8 a.m. to 10 p.m. on Feb. 24 and 7 a.m. to 3 p.m. on Feb. 25, Rome time.

Under Italian law, the publication of polls is forbidden 15 days before the election. The first instant polls will be released shortly after 3 p.m. Feb. 25 (2 p.m. in London, 9 a.m. in New York) when polling stations close.

Which are the main coalitions?

-- Former Prime Minister Silvio Berlusconi’s People of Liberty (PDL) party with ally Northern League (NL) and other smaller center-right parties.

-- Pier Luigi Bersani’s Democratic Party (PD) with ally Nichi Vendola’s Left, Ecology, Liberty (SEL) party and other smaller parties. The coalition is called “Italy common good” (IBC).

-- Caretaker premier Mario Monti’s coalition of centrist parties backing his agenda. They are presenting a single list of candidates in the Senate called “With Monti for Italy.”

-- Comedian Beppe Grillo’s Five Star Movement.

-- Former Palermo prosecutor Antonio Ingroia’s Civil Revolution.

-- Journalist Oscar Giannino’s Act to Stop the Decline party.

What is the election law?

-- Proportional system in the 630-seat Chamber of Deputies with a “majority premium.” The coalition that wins the most votes automatically gets at least 340 seats, or 54 percent of the total.

-- In the 315-seat Senate, the premiums are assigned to the winning coalitions on a regional basis. The regions that have the most seats are Lombardy (49), Campania (29), Lazio (28), Sicily (25) and Veneto (24). For a summary of the election law, click here. The upper house also has four senators for life, including Monti.

Is there a likely winner?

-- Bersani had support of 34.9 percent, according to the average of five polls published Feb. 8, one day before the blackout kicked in. Berlusconi’s alliance trailed by an average of 6 percentage points, with 28.9 percent, while Grillo was third with an average 16.4 percent. Monti’s coalition polled at 13.7 percent while Ingroia had 4.1 percent, just more than the 4 percent threshold to get seats in the lower house. The five polls published that day had an average margin of error of about 3 percent and reported about 30 percent of undecided or abstentions.

Why is the Senate race crucial?

-- Even if Bersani’s bloc wins by the margin indicated by opinion polls, it may still fall short of a majority in the Senate because of the regional nature of the voting.

-- The key battlegrounds will be the regions of Lombardy and Sicily, traditionally center-right strongholds, and Campania. In Lombardy, which also votes for governor, Berlusconi’s bloc and Bersani’s coalition were tied at 34.4 percent, based on the average of eight polls. In Campania, Bersani led 33 percent to 29.8 percent, based on the average of six polls. In Sicily, Berlusconi led 30.7 percent to 28.5 percent. These regions are considered too close to call as the gap between the coalitions is within the average margins of error.

-- A Tecne poll Feb. 7 showed the gap between the two blocs was equal or less than the margin of error of 3.1 percentage points in Lombardy, Campania and also in Piedmont and Friuli Venezia Giulia. The difference was less than 5 percentage points in Puglia and Molise. Tecne gave a 7.5 percent lead to Berlusconi in Sicily.

-- Bersani needs to win all the three swing regions for a 158-seat majority, based on polls. If he loses Lombardy, he would need to win all the other regions, including Veneto, where Berlusconi is ahead by 7 points, and could only afford to lose one or two small regions to reach 158 senators.

What are the possible outcomes of the vote?

-- The center-left bloc wins a majority in both houses that allows Bersani to form a government without the support of Monti’s centrists. The Democratic Party has already said that even in that case it would be open to collaborate with the outgoing premier’s coalition.

-- Bersani’s coalition doesn’t win an outright majority in the Senate and is forced to seek an alliance with Monti’s centrists.

-- The center-left, without a majority in the Senate, signs a pact with Monti’s centrists and the move strains ties with Bersani’s ally Vendola, who should get between 11 senators and 18 senators, based on an SWG poll and a Piepoli poll, respectively. Bersani and Monti could do without Vendola’s senators only if the center-left wins in at least one of the three main swing regions, according to Bloomberg calculations. Both Vendola, who has called for reversing some of Monti’s policies, and Pier Ferdinando Casini, one of the outgoing premier’s main partners, have ruled out a post-vote alliance between the two parties. Bersani has said any post-vote coalition would have to include Vendola.

-- If the center-left loses the three swing regions or Monti’s bloc polls much less than the last polls show, Monti’s votes in the Senate won’t be enough for the Democratic Party to assemble a majority. This means that Bersani may be forced to reach out to Berlusconi’s coalition to assemble a majority or Italian President Giorgio Napolitano may have to call new elections or appoint a caretaker premier to carry out urgent reforms such as changing the election law before going to another vote.

What are the latest projections for the Senate?

-- According to SWG estimates released Feb. 8, which don’t take into account the six senators elected by Italians abroad, Bersani’s bloc would have 146 seats in the upper house, while Monti’s centrists would get 21 seats, for a total of 167. In 2006 former Prime Minister Romano Prodi governed with a 1-seat majority in the Senate.

Are exit polls accurate?

-- In 2008, exit polls gave a 2 percent lead to Berlusconi’s bloc over the Democratic Party’s Walter Veltroni and his allies, less than the final 9.3 outcome in the lower house. In 2006, Romano Prodi won by less than 0.1 percent after first exit polls gave him a 5-point lead.

Who becomes prime minister?

-- The prime minister is appointed by the president of the republic. Coalitions have to indicate the head of the bloc and not the prime minister candidate. The head of the coalition winning the most votes isn’t necessarily appointed premier, though this happens most of the time. Napolitano, whose mandate expires in May, will designate a prime minister, who then tries to form a government. In case the designated premier fails, Napolitano can appoint someone else or call new elections.

-- Bersani is the prime ministerial candidate for the center-left and Monti is running for a second term for the centrist bloc. Berlusconi, head of the center-right coalition, has indicated party secretary Angelino Alfano should be premier, while his ally, the Northern League, has said former Finance Minister Giulio Tremonti should be the candidate. Berlusconi has also said he is prepared to serve as finance minister or foreign minister. Grillo is leading his movement, but is not the candidate for premier.

What are the main parties’ programs?

-- Democratic Party: Bersani would cut taxes for low and middle earners and would fund this by raising taxes on the rich and by cracking down on tax evasion. Bersani has said he will uphold Italy’s deficit commitment with the European Union while lobbying at a European level for more relaxed fiscal rules on investments to boost growth. His ally Vendola has been critical of Monti’s austerity and labor reforms.

-- People of Liberty: Berlusconi, who has stepped up his anti-austerity rhetoric after Monti refused his offer to lead a center-right coalition, has promised to cut taxes and abolish and refund a property tax known as IMU introduced by Monti, whose government he backed for a year. He has also said the EU’s fiscal compact is hurting growth and that the European Central Bank should become a lender of last resort.

-- Monti’s list: the caretaker premier’s pro-Europe and reform-minded roadmap to make Italy more competitive includes fiscal rigor and further efforts to open up closed professions, measures to battle corruption and conflict of interest and steps to lift employment among young people and women. Monti pledged to cut taxes by 30 billion euros ($40 billion) in five years.

-- Five Star Movement: Beppe Grillo’s anti-austerity agenda for Italy includes a referendum on the euro, the abolition of public funding to political parties, laws to address corruption and conflict of interest. The comedian-turned-politician has stressed that exiting the euro is not a taboo.

What are market expectations?

-- A victory for Berlusconi in both houses “remains very unlikely,” Eurasia Group analysts, including Peter Ceretti, said in a Feb. 12 note to clients. “The center-right has a remote chance of taking the lower house, but a victory in the Senate can be ruled out.” Eurasia assigns a 50 percent to 60 percent probability to a Bersani-Monti coalition, which will hardly be able to “push ahead with an ambitious structural reform drive,” according to the note. The probability of a stalemate in the Senate is 20 to 30 percent, Eurasia said.

-- The most probable and most favorable scenario is a Bersani-Monti coalition, UniCredit economist Loredana Federico wrote in a note to clients Feb. 7. Negotiations between Monti and Bersani and his ally Vendola won’t be easy, with the risk of veto power by Vendola’s SEL if the coalition doesn’t secure a solid majority, she said.

-- If the vote produces a hung Senate, “either a grand coalition or renewed elections may follow,” economists at Bank of America Merrill Lynch including Raffaella Tenconi said in a note to clients Feb. 7. A new Monti-led coalition of the three main political parties “could be more fragmented” after Monti’s decision to back a party, Merrill Lynch said. Another election could follow “as soon as early summer,” the worst case scenario, as “it implies prolonged political uncertainty and further delays” to reforms, it said.

-- A Monti-Bersani post-vote alliance is “the best outcome,” economists at Barclays Capital including Fabio Fois wrote in a note Feb. 8, adding that “questions remain over whether there will be convergence on the key structural reforms.” Financial markets will focus in particular “on the government’s strategy to reduce labour market duality, enhance competitiveness in the non-tradable services sectors, reduce the inefficiencies of the public administration” and cut debt through asset sales.

-- The base case scenario is for a “weak” government with Bersani and Monti “potentially forced to be enlarged to take in other minor parties,” Mediobanca analyst Antonio Guglielmi wrote in a note to investors Feb. 18. “The risk of new elections would therefore be material,” he said. A “booming success” of Grillo’s Five Star or a Berlusconi victory would “scare the market sufficiently to put pressure on the spread so to offer Italy the perfect excuse to apply for the European Central Bank’s bond buying program.” Mediobanca notes this worst-case scenario could “paradoxically” be the best as it would force Italy’s hands in a bailout.

-- JPMorgan Chase & Co. analysts said in a Feb. 4 note that polls underestimate Berlusconi’s support by 4 percentage points. Still, the center-left should be able to “patch together a deal” with Monti for the Senate, they said. A surprise win by Berlusconi, their worst-case scenario “if managed poorly,” could prompt Italy to seek a bailout after “heavy market pressure.”

-- A majority for Bersani and Monti of less than 10 seats “would increase the risk that the reformist drive could be significantly slowed,” Deutsche Bank analyst wrote in a note Feb. 1.

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