Politics

Italy elections likely to result in ‘worst outcome’ of a hung parliament

Key Points
  • The center-right bloc of Forza Italia, Lega Nord and Fratelli d'Italia, led by former prime minister Silvio Berlusconi, remains the frontrunner with center-right parties seeing a combined popularity of around 35.1 percent
  • The exact date for the election is yet to be confirmed, although the likely date is March 4
Rome, Italy
Giorgio Cosulich/Getty Images

A general election in Italy in early 2018 is likely to end in a hung parliament, mimicking the political situation across much of Europe.

The exact date for the election is yet to be confirmed, although the likely date is March 4. An opinion poll by EMG Acqua from early December suggested that no one party would gain a majority of the votes, creating a "hung parliament" situation.

The center-right bloc of Forza Italia, Lega Nord and Fratelli d'Italia, led by former prime minister Silvio Berlusconi, remains the frontrunner with center-right parties seeing a combined popularity of around 35.1 percent.

The anti-establishment, euroskeptic Five Star Movement (M5S) under Luigi Di Maio is second in the polls, with 28.3 percent of the vote.

The center-left is lagging behind with various parties on that side of the political spectrum looking like they could gain a combined 30 percent of the vote, as it stands. The Democratic Party (PD) of former prime minister Matteo Renzi has seen its popularity decline to 25.3 percent, putting it in third place as a sole party.

Lorenzo Codogno, professor at the London School of Economics and founder at LC Macro Advisors, told CNBC on Thursday that the race was between "four major forces: the center-right, the center-left, the left and the Five Star Movement."

However, he said that the most likely scenario "is a hung parliament which effectively means a grand coalition," and that could lead to instability.

Italian election race is among four major forces: LSE professor
VIDEO3:0803:08
Italian election race is among four major forces: LSE professor

"I think the real threat for investors is a prolonged period of instability. Italy cannot afford to have no government for a prolonged period of time. If we have no government and maybe new elections, that could trigger some volatility and pressure in the market."

For one, former prime minister Berlusconi suggested Thursday that if there was no clear winner in the election, he would support Prime Minister Paolo Gentiloni to stay on in government while another snap election was held.

Worst case scenario?

Wolfango Piccoli, co-president of risk consultancy Teneo Intelligence, said in a note Thursday that the worst case scenario — a hung parliament — was the most likely event and that uncertainty surrounded the election.

"The bottom line (and our current base case) is that the worst outcome in terms of governance and stability is also the most likely one: a hung parliament," Piccoli said.

"This would mean that in the aftermath of the vote, Italy enters again a difficult political phase characterized by recurrent noise about snap polls, poor governance and a negative reform outlook."

During this phase, an interim government sponsored by the president would also have to secure a parliamentary majority ahead of each vote.

Piccoli said there were a number of possible scenarios during the election and that the result could be determined by around 40 percent of the electorate that is still undecided on who to vote for, and by turnout. But Berlusconi's Forza Italia was likely to have a role in a likely coalition government, he said.

What about Berlusconi?

Former Italian Prime Minister Silvio Berlusconi attends the political show 'Porta a Porta' at RAIÕs broadcast studios, on November 16, 2017 in Rome, Italy.
Alessandra Benedetti - Corbis | Corbis via Getty Images

Billionaire businessman and politician Berlusconi hopes that the European Court of Justice will overturn a ban on him running for office, following a conviction for tax fraud. This would allow him to stand in the election as head of the Forza Italia party of which he is president.

"Neither the PD nor the M5S can win an outright parliamentary majority in both chambers. Neither has the necessary votes on their own, nor do they have enough allies," Piccoli said.

"It is also certain that Silvio Berlusconi's Forza Italia would have to be part of any governing arrangement after the vote."

Another possible scenario is a victory of the center-right, allowing Berlusconi and his allies to secure a thin parliamentary majority, Piccoli said. But he added that "the bar to achieve this is high" with the party needing to do well in the regional vote, especially in the south.