Populist coalition could take Italy

The populist Five Star Movement (M5S) and Matteo Salvini’s anti-migrant Northern League party were the two big winners from this month’s general election, but each is short of a majority.

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Matteo Salvini: only ego stands in the way
(Image credit: Credit: Independent Photo Agency Srl / Alamy Stock Photo)

Investors and Italy's European partners are worried, says John Follain on Bloomberg Politics. The populist Five Star Movement (M5S) and Matteo Salvini's anti-migrant Northern League party were the two big winners from this month's general election, but each is short of a majority. Now the two have ganged up to sideline Salvini's centre-right ally Silvio Berlusconi in votes for parliamentary speakers. The pact has sparked talk of a populist coalition. The snag is that both the League's Salvini and Five Star leader Luigi Di Maio want to be prime minister.

"Ego is Italy's main barrier to a radical government," says Lisa Jucca for Breakingviews. Salvini "does not want to risk playing second fiddle" by jumping into an alliance without Berlusconi's Forza Italia, his main political ally. Yet Five Star is "reluctant " to work with Berlusconi, whom they consider emblematic of a corrupt political elite. The two sides should be able to iron out any policy differences, however. They have both pledged to limit immigration and "unravel Italy's retirement rules".

A coalition of the League and the M5S could produce a stable government with "clear majorities in both houses" of parliament, says The Economist.Yet there would be "tremors of apprehension" in markets. Both parties have "vowed to defy the eurozone's budget-deficit limits" and would likely "add tens of billions of euros" to Italy's "worryingly high public debt", which is already north of 130% of GDP.

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Financial markets, hitherto calm, are in denial, says Wolfgang Mnchau for the FT. Populist parties already account "for some 60%" of Italian lawmakers, not a bloc likely to approve another austerity budget. The election result was "the predictable response to two decades of economic policy that failed to produce jobs for young people". If things go south we may soon discover that "a time of economic stability" can be defined as "the period between two crises".

Alex Rankine
Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.

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