May 29, 2018 / 12:49 PM / a month ago

Italy heading toward fresh vote later this year

ROME (Reuters) - Italy is heading toward a fresh election in September or October because parties failed to put together a government. The previous vote in March ended with a hung parliament.

Former senior International Monetary Fund (IMF) official Carlo Cottarelli speaks to the media after a meeting with Italy's President Sergio Mattarella at the Quirinal Palace in Rome, Italy, May 28, 2018. REUTERS/Tony Gentile

Prime Minister-designate Carlo Cottarelli, a former director of fiscal affairs at the International Monetary Fund, is expected to head a caretaker government until the election is held.

Here are some possible scenarios for the election and post-election period.

5-STAR AND THE LEAGUE FORM AN ALLIANCE

This scenario is probably the most feared by markets, which were already spooked by the common program the two parties drafted earlier this month. It foresaw a spending spree on tax cuts and welfare, and the abolishment of an unpopular 2011 pension reform.

Their would-be alliance disintegrated at the weekend when President Sergio Mattarella rejected the coalition’s eurosceptic economy minister in defense of the country’s commitment to the single currency.

Both the anti-establishment 5-Star Movement and the far-right League have said they are considering running in tandem and that their so-called government “contract” could still be the basis for a future alliance, but they have yet to decide.

An SWG poll showed that the League has gained more than 10 percentage points since the inconclusive March 4 election and is now at more than 27 percent. The 5-Star lost about three points to 29.5 percent. Together they would have an imposing majority in parliament.

The main concern is that the vote will end up being a referendum on the euro, or more likely, on the European Union, after Mattarella’s veto.

CENTER-RIGHT GOVERNMENT

In the March vote, the League emerged as the most popular party in a center-right alliance that includes former Prime Minister Silvio Berlusconi’s Forza Italia party, and on Monday Berlusconi said the conservative bloc should remain united.

But League leader Matteo Salvini has yet to commit. The latest poll shows the center-right would win about 40 percent of the vote, compared with 37 percent in March. That would likely put the bloc short of a parliamentary majority.

Most of the League’s votes appear to be coming from Forza Italia, which has lost 6 percentage points since March, the poll showed.

This bloc would be slightly more reassuring to markets and Europe’s establishment because Berlusconi has cast himself as a moderate center-right figure. Forza Italia has repeatedly governed with the League, locally and nationally, often tempering its more radical positions.

The 81-year-old Berlusconi was not able to run for office in March, but he will be able to run as a prime minister candidate for Forza Italia at the next vote. Earlier this month a tribunal lifted a ban on Berlusconi’s holding office that was tied to his 2013 conviction for tax fraud.

DEMOCRATIC PARTY FORMS ALLIANCE WITH 5-STAR OR FORZA ITALIA

These are currently among the least likely scenarios.

According to current polls, the center-left Democratic Party (PD) would get about 20 percent of the vote, slightly more than in March, which could be enough to form a majority with 5-Star.

But the PD repeatedly refused to ally itself with 5-Star after repeated overtures following the March vote, and it has so far signaled no change in its position.

A right-left alliance between the PD and Forza Italia, which governed after the 2013 election, would come up well short of a majority, according to polls. The PD has always ruled out any alliance with the far-right.

VARIABLES

Italy has never held an election in the fall, so for the first time parties will be campaigning during what is typically the holiday season, when Italians go to the beach or on long trips abroad, and their attention to politics wanes.

Also, since the interim cabinet is not likely to have a parliamentary majority, 5-Star and the League could join forces and pass a new electoral law. The current one is almost purely proportional representation, though it does favor coalitions.

On Monday, the League’s Salvini said he was weighing making a change to the voting law with 5-Star, but he did not give any hints as to how it might be altered. Any changes would clearly have an effect on political calculations ahead of the vote.

With the current electoral law, there is nothing that prevents the League from sticking with the center-right coalition — as it did in March — and then striking out on its own with the 5-Star after the vote.

Reporting by Steve Scherer; Editing by Matthew Mpoke Bigg

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