Did Five Star Movement Just Blink or Are we Headed to New Elections?

Italian coalition talks have reached the end of the road.  The latest news out of Italy has Five Star Movement (M5S) leader Luigi Di Maio willing to consider someone else as Prime Minister.

From Bloomberg (so salt to taste):

“I want to do a political government with the League based on some points,” Di Maio said Sunday in an interview on broadcaster RAI. “If Di Maio as premier is the obstacle,” then let’s choose together another prime minister, he said.

Di Maio, 31, is making a last bid to form a “political government” before President Sergio Mattarella begins a final round of meetings with the parties after an inconclusive general election in March.

There will be a meeting on Monday, May 7th, to make one last push for a government.

The Bloomberg article is giving you the EU’s preferred outcome, a League-led government with Forza Italia over-represented giving their stalking horse Silvio Berlusconi a larger say than he warrants.

Shifting Poll Numbers

As always with U.S. media, the meat of the article it buried at the end, the latest poll numbers.

Polling group Youtrend compiled an average of voting intention surveys on May 3 which showed Five Star at 33.6 percent, compared with 32.7 percent in March elections. The League has gained 4 percentage points since the elections while Berlusconi’s Forza Italia has lost about 2 points.

I find it interesting that Di Maio would blink like this just a couple of days after saying that he and Five Star Movement would prefer a second round of elections in July.  Moreover, I find it disconcerting that Salvini would want to continue hitching his rising star to a falling one like Berlusconi’s.

It’s not likely that Di Maio is going to completely cave here unless there is other arm-twisting going on behind the scenes.  M5S is too strong a movement to be shut out of its own government.

So, the likely scenario for tomorrow is that talks go nowhere as Salvini tries to leverage the coalition’s strength versus M5S’s and Di Maio sticks to his guns.

Both should be willing to got back to the polls in July to see where their support truly lies.  A result similar to the quoted poll above would give an M5S/League alliance a solid majority in Italian parliament.  Seats they didn’t pick up in March should be in play, even given that 1/3 are chosen directly now.

The new election structure which allowed for coalitions to campaign together resulted in nearly the perfect situation for continued weak government in Italy which Brussels can abuse.

But, the problem has been Salvini and his firebrand, nee Trumpian, persona which has seen the League’s support double in the past six months.

Prideo Goeth and All That…

I warned you we would get to this point last month, musing as to whether coalition talks have stalled because of League leader Matteo Salvini’s immense ego.

It is fairly obvious that Salvini is a little drunk on the power of his newfound status of coalition leader. He’s trying to milk it for whatever he can get from it. And that’s the real danger.

Salvini believes a re-vote is in The League’s favor.  But, I wouldn’t be so sure of that.

In response to talks breaking down, M5S Leader Luigi Di Maio made coalition overtures to the Democrats who promptly rejected him.  And that’s expected.  The establishment parties are beholden to Brussels in the end.  It is their job to deliver a result that aligns with further EU integration.

And his unwillingness to break up the coalition with Forza Italia or even completely sideline Berlusconi is all the proof you should need to conclude he’s not really willing to stand up to Brussels.

All that talk of “I’m a populist” and “The EU can go f$@k itself” may have simply been more smoke than fire.  We’ll see.

As I said in my previous article on the matter, Italians voted against the established parties for something new.  They didn’t vote for The League or Five Star Movement.

They voted for change.  It was a protest.  And the energy behind protests can be dissipated by the establishment by seducing the ‘new guys’ with power and back-room deals.

Salvini and Di Maio are both outsiders to Rome.  They represent a sea change in Italian politics.  And, as such, should see each other as natural partners not rivals for a job neither is actually qualified for at this point in time.

So, check the egos, have a constructive meeting and get a deal done that puts both parties on strong footing.  Salvini has to give up his alliance with Berlusconi who hates what Five Star represents and Di Maio should give up being Prime Minister if that’s the only way Salvini’s ego can be salved.

If they don’t, they will be headed back to the polls.  And it’s there that things make even more sense for the two to put their differences aside and form a working coalition that stands up to Brussels and, more importantly, Berlin.

Market Outcomes

The most likely outcome from tomorrow’s meeting will be more of the same.  If Di Maio caves completely then Brussels will be able to mute any reforms Salvini introduces and allow Berlin to play serious hard-ball on debt relief/restructuring which Italy desperately needs.

The euro will bounce on that news and bond yields across the euro-zone will fall, if only for a little while.  The dollar is beginning its next leg higher which will put upward pressure on rates across the board as dollar-denominated debt service puts trillions at risk.

But, if Di Maio and Salvini don’t come to an arrangement then the market will be hostile to that and the opposite will occur, confirming nascent trend changes.

The euro is already flirting with a change in trend, below $1.20.  Italian 10-year debt has pulled back from the bear market brink but it trapped in a tight trading range near 1.80%.

The markets are holding their collective breaths waiting to see what transpires between a group of egotistical, hot-headed Italians.  It should, because anything is likely.**

** = It’s not racist to slam your own people’s shortcomings, folks.

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9 thoughts on “Did Five Star Movement Just Blink or Are we Headed to New Elections?

  1. Mr Luongo,
    Clearly you do not live in Italy and most likely you live thousand and thousand of miles away.
    This may help explain why you miss the fact that the Five Star Movement has suffered very serious setbaks in the recent regional run-up elections in Molise and Friuli Venezia Giulia. In this region, Friuli, the 5SM has seen the electoral support litterally halved within a month from the 4th March elections.
    The dissatisfation with the 5SM is truly palpable among ordinary Italians. On the other side you play down the solidity and compactness of the Centre-Right coalition which is even stronger among the voters’ base, than among the elected representatives. If Salvini were to part from the rest of the coalition he would be losing many of his supporters within the Lega.
    Finally you do not understand that there is a real political and geographical divide between the Centre-Right coalition on one side and the 5SM on the other. The Northern and Central parts of Italy want less taxes and less immigration. The Southern Italy and part of Tuscany want subsidies in the form of the “reddito di cittadinanza”, the universal citezenship income. Talk to anyone in the productive part of Italy, which generates 2/3 of the GDP and the vast majority of tax revenues of the country. You’ll see that the people in Northern and Central Italy are ready for insurrection if there are going to be yet other hand-outs in the form of universal citezenship income.

    • I understand these dynamics and would prefer to see the League win out here…but Berlusconi is a real problem when it comes to the bigger picture, which is that Italy needs to leave the euro to regain its competitiveness and stand up to Brussels.

      I want to be wrong about Mr. Salvini but the EU has done everything it could to spoil this revolt and retain control in Rome.

      The North/South divide is real. M5S and The League are united on the biggest issues…immigration and the euro. That should be enough to form a coalition.

      Do they have the seats to do so without a revote? No. And that’s the problem.

    • One last things Maurizio, I have covered this over the past year and predicted this very outcome. Today’s is not a one-off article.

      Simply put, I’m very worried that the energy of this revolt will be bled off by Brussels and your own “Swamp” to maintain the status quo. Too much is at stake for them to not try everything.

      If you don’t believe me, look here at the U.S., or Brexit, or Catalonia or Greece. Same story everytime.

      Don’t trust anyone in this fight, because every one has their limits. So, again, I say, I hope Mr. Salvini is the real deal, I really do. But, until I see otherwise I’m going to remain properly skeptical and critical.

      If he is I will cheer to the high heavens and be happy to be wrong here.


      • Mr Luogo,
        Sorry, but I need to correct you again, most likely again because you live too far away.
        The M5S and The League are not at all united on the biggest issues: immigration and the euro.
        To get the premiership by pleasing the establishment Mr Di Maio and the M5S have completely reneged on the euro and the non-sense of the Eurocratic red tape. Also on immigration the M5S has had to play down not to irritate the left wing establishment ruling the country, without a real elected premier. This is so since the coup d’état (golpe) orchestrated by Brussels in 2011, against the last elected government Italy has had, the one headed by Mr Berlusconi. President Mattarella is precisely the expression of that sort of eurocratic left wing establshment.
        Also you forget that Mr Berlusconi was the first one to question the role of the euro, even proposing a dual currency system. Mr Salvini came only second and the M5S maybe third. this for the exact time chronicle. However I do understand that Mr Berlusconi with his mistresses and his money may be an unpalatable character.

      • My worry about Berlusconi has nothing to do with his money, it has to do with his past and his behavior on the campaign trail which was way too accomodating to Brussels for my taste.

        I’m not convinced that M5S has actually moved too far off from leaving the euro except publicly to present the right face to win the election. But, I don’t think Silvio is in the same boat. I think he’s a political chameleon who will do whatever it take to regain power. That’s been his history and I don’t have to live in Italy to understand that.

        I know the history of Berlusconi’s ouster but also distrust him as a stalking horse for the establishment.

        Looking at the situation with Mastrella calling elections early, he helped create this stalemate but hoped the League would remain the junior partner in the coalition. And that’s not what happened.

        The poll numbers have been clear in their push to remove the old establishment as were the election results both for M5S and The League. I get what you’re saying but Berlusconi’s behavior during the campaign was questionable to say the least and the coalition was a marriage of convenience for Salvini to broaden the League’s profile.

        That it has grown beyond that is fantastic. But, there are still a number of tripwires here. I think Salvini and Di Maio would be happy with a coalition which focused on corruption, immigration and taking a hard line on Italy’s debt with Salvini in charge but they need more seats than the March results gave them.

        Correct me if I’m wrong, but that’s the only stumbling block I see at this point…. time is on both of their sides and not Berlusconi’s or Mastrella’s.

  2. By keeping the coalition together may be Salvini is playing for the leadership of all the “centro destra” (center right) , because Berlusconi has not groomed any successor ( he is over 80 ) .

    • I can see that side of the argument, but given the circumstances and how important this new Iralian government is to the future of the EU, I have to be very skeptical of any maneuvering that keeps M5S on the sidelines, similar to what’s gone on in Germany with AfD.
      And, while I hate to throw shade on Salvini who has a good grasp of the economic realities of Italy remaining in the euro I have to be honest in presenting another interpretation of what’s going on.

      • Mr Luogo,
        As for your considerations on Berlusconi trying to regain the power at 80 years of age, you might be right but I have just a few doubts. The issue though is that when analysing a given situation one should focus not on personal inclinations and considerations but facts.
        You are asking me to correct you if you are wrong.
        Sorry, but when considering the facts I need to correct you yet another time and the facts are the following:
        1. The M5S has not moved off anti-Brussels positions to win the election but they have done so to please the establishment and get the green light to the government after the election.
        2. A fact is also that Berlusconi has been the last head of the Italian government elected by the people.
        3. Another fact is Berlusconi’s ouster and the issue is that he was removed from the government by a successful plot (none dare call it a conspiracy….) after he mentioned at a Brussels’ council his opposition to bail out the banking system and after raising the issue of a possible dual currency system for Italy (beside being against the military intervention in Libya and in favour of a greater integration of Russia in the European economy and political space).
        4. Mattarella (please not Mastrella) did not call early elections but on the contrary to the very last day.
        5. Mattarella kept in power a government which had gained only 29 % of the votes and gained a large parliamentary majority just by means of an electoral law which gave a huge majority to the coalition winning just a few votes more the second party or coalition.
        6. The Centre- Right coalition has not been a marriage of convenience for Salvini to broaden the League’s profile but an established fact of the Italian political life for more than two decades.
        Mr Luongo, from your family name I suppose you are of Italian origin or an émigré.
        An émigré typically has the advantage of a detached point of view but also a double sentiment towards the country of origin and I very well know that.
        Actually I am myself an émigré but to Western Switzerland and therefore much closer to Italy.
        By consequence I am maybe better placed to check the facts.
        Let me suggest that when commenting on Italy you try to put more efforts in checking the facts.

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