By William Finlator

Europe’s next big crisis will likely be Italian – and if it is, 2022 has a good chance of being the year it happens. Making political predictions is a quick way to make oneself look stupid – however, in this case, Italy’s reckoning with a crisis is well overdue. Crude electoral logic is one of the few certainties of politics – and for Italy, the prognosis is not good.

Looking Back

To go forward it helps to look back first. Italy’s last election was in March 2018. At the time, the result seemed shocking to many with liberal sensibilities. Enough votes had been cast for the two populist outfits the MS5 and the Lega Nord to form a coalition.

However, the threat posed by this coalition was muted by both practical and ideological realities. The key actor here was and remains the MS5. The MS5’s strength is its ‘anti-politics’. It stands in opposition to politics and the corruption of the political system – as a result, it pooh-poohs ideology wholesale. Evidence is provided by Beppe Grillo, a comedian and the movement’s founder. Grillo’s rhetoric emphasized self-evidently desirable end-goals – such as transparency or accountability. Achievement of such goals would come with a sweep out of the system – rather than any given policy.

The problem was, and is, that to govern is to choose. Strong and broad ambiguity provides ample chance to ramp up support but cannot survive the magnitude of responsibility found in government. Once in Government, the MS5 had to make a choice – cooperate with the system or remain opposed to it. Ultimately it chose the former, reversing its ideals and instead faced the political reality.

The MS5 turned out to be the grown-up partner of the coalition – while the Lega Nord, under Matteo Salvini, continued to espouse anti-politics while in office.

The coalition placed a competent technocrat, Giuseppe Conte, into prime ministerial office. However, the marriage of the two parties failed to stick – Salvini made snide comments and signals indicating unhappiness with such an arrangement. The polls favoured the disparity: Salvini began an ascension upward, capturing the populist mainstream from the MS5. In late 2019, Salvini filed for divorce: he left the coalition and hoped to induce an election.

The non-election of 2019

Unfortunately for Salvini, this never came. Fear of electoral collapse and a hard-right coalition forced a quick political betrothal between the left-wing PD and the MS5. The two were not natural bedfellows: for the MS5, the PD is a symbol of old-style politics – both distant and corrupt; the PD, meanwhile, were sceptical of drastic political change and more so populism of any form.

As a result, the coalition seemed shaky and at risk of collapse – dissatisfaction was evident within both parties. Most notably, Matteo Renzi, the former leader of the PD and Prime Minister, led several PD members into a new outfit – Italia Viva – which placed pressure onto the coalition at several key moments.

Another election was probable; yet, did not happen. The reasons are broad, but two stand out. The first is the role of Covid. In early 2020, Italy was one of the first countries to go into lockdown. Covid froze politics – Parties and voters recognised the necessity for national unity in crisis. Support for then-Prime Minister Conte rose dramatically, and subsequently, the Lega’s support dropped. The perceived need for dramatic structural changes in Italy was still strong, but most recognised this was not the time to achieve it. There was enough gas in the car for another year or so – but by 2021, the dogs were at the door once again. Despite Covid, support eventually drained away from the Conte-led coalition. Crucially, former Prime Minister Renzi withdrew his support in early 2021. At this moment, an election seemed likely.

Super Mario

And so, it may have been, had it not been for one man and the second cause – Mario Draghi. Draghi was wheeled in by Italian President Sergio Mattarella to replace Conte. This decision proved decisive. Draghi – or ‘Super Mario’ as Italians have christened him – is the internationally respected former head of the European Central Bank. Draghi, well-liked by most Italians, injected important belief and trust into a beleaguered institution at a crucial moment. In fact, not only did Matteo Renzi, the PD and MS5 support Draghi – but such was the allure of Draghi that even Salvini and his Lega party supported him. In essence, politics in Italy in 2021 was the most stable it had been in many years – with widespread consensus on the key question of leadership.

Why Now?

An election must happen between now and early 2023 – but there is a good chance it will happen sooner. If it does, it is very likely to be enormously consequential for both Italy and Europe. 24th January 2022 is a date to chalk into one’s calendar. This marks the beginning of the next Italian Presidential election. Mario Draghi has made noises that indicate interest in such a post, which only opens every seven years. The President’s power is pivotal to Italian politics, having the power to appoint Prime Ministers and being a rare bastion of security in a politics dominated by rapid, unpredictable change.

As much as Italians may prefer this, Mario Draghi cannot hold two posts at once and must vacate the Prime Ministerial seat if elected President. As a result, the keystone of political stability may become loose. If Draghi resigns, it would be hard to replace him and so an election, and political vacuum may be imminent. Such uncertainty ensures parties may begin to circle.

Even if Draghi chooses not to take up the post, the Presidency remains up for grabs, causing similar logic to apply. When the electoral clock ticks close to zero, playing around is a dangerous game – what matters is avoiding any unforeseen potential electoral shocks.

So What?

This potential for crisis matters. It matters because if things turn sour in Italy, through political instability sinking consumer confidence, it may ripple into its neighbours and the EU.

Italy’s debt-to-GDP ratio is high, at 180%, and remains the third biggest in the EU. This combination could prove potent.

If confidence in Italy’s ability to pay off its debt falls, the cost of borrowing will rise as Italy is forced to offer more lucrative bonds to international markets. For a country with such high debt, this can turn bad quick. If Italy is unable to borrow money off international markets – it will cause a national crisis. The Euro and deep intra-EU trade links make such a crisis hard to isolate – and so will rock the European boat. A crisis in Italy will be terrible not just for its people, but also for its trade partners and fellow Union members.

This may happen because of an election for two reasons. The first is that if Mario Draghi is not at the centre of a coalition, international financial markets may lose trust and confidence in Italian bonds. The Covid crisis has laden a debt-heavy nation with even more. It is a testament to the strength of Draghi’s fiat that such pressure has not been borne sooner.

The second is that an election is likely to place more diehard populists into power. Together populist hard right parties Matteo Salvini’s Lega Nord, Silvio Berlusconi’s Forza Italia and Georgia Meloni’s Fratelli d’Italia are likely to gain well over 50% vote share. If they do, the coalition they create could be difficult to control, Eurosceptic and fiscally indulgent. All three of these characteristics seem custom-designed to annoy rather than placate international markets.

A European Crisis

Nevertheless, there are some areas where some optimism is justified. The crisis sounds scary, but it is unlikely there is to be a repeat of Greece in 2010. If anything, the next crisis will likely be far more typically European – drawn-out, technocratic and tedious.

Loans, quantitative easing and forms of debt mutualisation will be the watchwords of such a crisis. The EU, slow-moving behemoth though it is, is unlikely to repeat its most egregious past mistakes. As a result, it may move to prevent the crisis before it turns toxic.

“History never repeats itself, but it rhymes“, so said, Mark Twain. So, it may be in 2022 – like in 2012, Europe may find itself in a debt-related crisis. But this time around, Europe have experience and wields the tools and hopefully the knowledge to tame such a potential beast. Europe will have the power to do even more if it has learned from past mistakes. The next crisis, we can hope, will be EU own brand – so boring you won’t realise it ever happened.

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.