Italian Election Results: Government Deadlock, Euro Exit?

Italian election results are in and the winner is...Beppe Grillo and his Five Star Movement!

Yesterday, I had predicted a deadlock between the three coalitions: on the left, the PD (Democratic Party of Pier Luigi Bersani), on the right, the PDL (Popolo delle Libertà of Silvio Berlusconi) and placed neither on the left or the right, the total newcomer, the Five Star Movement of Beppe Grillo, a notorious comic, the sort of man who crossed the channel swimming when he went to Sicily for his campaign. In all this, Monti, the premier of the "technical" government that over the past year had imposed austerity measures that were widely hated, was predicted to come in last, around 10 percent of the votes. And the largest party, as always, was predicted to be absenteism.

All my predictions (alas!) came to pass.

The absentee vote was the largest: 35% of the electorate didn't vote, 5 % more than at the last elections in 2008. Monti got in around 10% , Beppe Grillo turned out to be the biggest party at the Chamber of Deputies with over 25% of the vote, though he cannot control the Chamber because, under the present electoral system, there is a premium of seats awarded to the winning coalition, and the PD of Bersani together with Monti obtain over 40%, thus ending in pole position - something that is currently contested by Berlusconi's PDL whose 30% result trails closely the PD by a gap that could be so close that it would be what Americans call "too close to call".

Putting aside this squabble (which may require a decision from the Italian courts), the most probable outcome is a left coalition in control of the Chamber of Deputies, and Berlusconi's right coalition in control of the Senate - with Beppe Grillo's movement awarded a consistent share of seats in both chambers. Such a big share that Grillo could become the deciding factor, what the Italians call "l'ago della bilancia".

So now we know that Italy is really in the hands of a couple of buffoons: Berlusconi and Grillo, with the latter in a possible watchdog position.

We also know the exact size of Italians' protest against their political class - they call it disdainfully "la casta", the caste.  Fully 35% of Italians didn't vote basically because they didn't know who to vote for. And 25% voted for Beppe Grillo whose movement was born three years ago and whose political platform is pure protest: he appeals to everyone who's angry about something from corruption to political privileges and clientelism, unemployment - 2 out of 3 youth is looking for a job - destruction of the environment and cultural heritage etc etc. The list is long.  That's sixty percent of Italians!

To this you could add the vote for Monti, a totally new figure on the political scene as well as Nicchi Vendola and Matteo Renzi on the left who's the young and attractive mayor of Florence - taken together, another 25 percent which however have to be counted within the leftist coalition led by Pier Luigi Bersani.

Matteo Renzi, Mayor of Florence

This whole wave of protest is similar to the Indignados in Spain and the Occupy Wall Street movement in America. People across the board - the famous 99 percent - are fed up with injustice, privilege and ethical laxity!

Interested in the exact numbers? You can check them here. But what I'm interested in is the result this election will have on Italy's economy and more generally on Europe and the Euro - which also eventually reflects on the US and the whole world.

Results in terms of the stock markets, in particular the Italian MIB, were immediate this morning: it plunged! So did the Euro while the famous "spread" (the difference between the cost of raising funds for the Italian government compared to the German) immediately climbed over 333 points and is likely to be as bad as it was when Monti was called in to form a "technical government" to "save" Italy from bankruptcy back in the fall of 2011 when Berlusconi resigned.

A worse-case scenario would have Italy returning to the terrible days of 2011 with a collapse of the ability of the government to finance itself (read: bankruptcy) and exit from the Euro. What next? I don't like to contemplate it. A collapse of the banking system, evaporation of pensions and savings, generalized unemployement and shutting down of the industrial system. Worse than the Great Depression! With obvious effects on the European Union since Italy is the fourth largest economy in Europe or possibly the third, after Germany and France and vying for third position with the UK.

The shock waves would rock the world, US and China included.

Is all this really likely? Call me an optimist, but I don't think so.

There are two reasons why this may not happen. One is technical: markets have probably already discounted the election result. For quite a while now, investors expected elections to result in a stalled situation, possibly an impossibility to govern the country and an early return to elections. The second reason is more political: will the "Grillini" (as the Italians call the new party) really cause the country to grind to a halt? My bet is that they won't. Beppe Grillo has already announced that over the next 6 months he will do his best to actuate his electoral promises. Of course, politicians always say that.

And what does his platform consist in? It is based on five simple ideas, five overall issues - the five that give the name to his movement:  public water, sustainable mobility, development, connectivity, and environmentalism. This is not a consistent program but rather a mixed bag of ecologism, leftist ideology and masterful use of the web, hence the appeal to young Italians. In short, a moveable feast that pulls together many different tendencies and points of views, united only by a common spirit of protest.

If my reading of the nature of Beppe Grillo's movement is correct, then this is a party that will never align with Berlusconi but will, on the other hand, occasionally align with Bersani's leftist coalition. Which means that Bersani will likely be able to form a government with Monti and get most of the needed laws passed - except for a few that the Five Movement will stop as it sees fit.

In short, the Italian political caste now has a Big Brother watching it, Beppe Grillo!
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