Italy is struggling — again — to form a government. But with massive debt and a large economy, Italy is no financial side show. Time to pay attention.

Italy
Italian President Sergio Mattarella talks to the press after a second round of consultations to form a government failed, Rome, 13 April 2018 (Alessandro Di Meo/ANSA via AP)

By Tiziana Barghini

Italy is having trouble forming a government. Nothing new, you might say.

But Italy is the third largest economy in the euro zone, and its public debt is bigger than the nation’s annual economic output.

If the world’s financial markets start believing that Italy cannot manage its economy or accounts, they could lose confidence in Italy’s solvency — and that could spell trouble for the euro zone and even the global economy.

Italy’s situation is a sobering reminder that democracy often throws up unstable politics.

At a time when liberal democracy is under assault by autocratic, populist leaders, Italy’s plight offers political lessons for a world that otherwise might pay scant attention to yet another bout of nerves in southern Europe so soon after Greece’s own debt crisis.

Italy’s gridlock is not a surprise.

Italy has been without a government since a general election seven weeks ago. There’s no knowing if squabbling politicians will be able to agree on a government, and there’s the possibility the country will have to vote again soon.

The populist Five Stars party took the largest share of the March 4 vote — 32 percent. But that left it short of a parliamentary majority — Italy’s government emerges from parliament, not from the presidency — and in need of coalition partners.

Possible partners are either the center-left Democratic Party or a right-wing coalition dominated by the populist Lega and former Prime Minister Silvio Berlusconi’s Forza Italia.

Less likely combinations for achieving a parliamentary majority could involve an improbable alliance between the center-left and center-right, which would cut out the Five Stars party, or a coalition of all major forces.

Italy’s gridlock is not a surprise and was, in fact, widely expected. It is the consequence of the return to a proportional electoral system, the system that produced a long period of instability following World War Two and which helped fuel such a high level of debt.

The new electoral law was hastily approved after the constitutional court declared unconstitutional a system used since 2006. Under the new system, two thirds of the seats are allocated in proportion to the votes obtained by the parties, while a third of the seats are assigned through a first-past-the-post system.

Coalition governments can take a long time to form.

Widely used in continental Europe, the proportional system allows for better representation of different political views and enables small and medium-sized parties, which might not win any seats in a single-member constituency system, to win spots in parliament.

But to work, proportional representation can require parties to form coalitions so as to create a governing majority. Swallowing one’s pride is not a strong suit for many politicians, and coalition governments can be prone to instability due to the continuous haggling among parties.

They can also take a long time to form.

Belgium holds the record for the length of time to form a government. After an election in 2010 produced a fragmented political landscape, with none of the 11 parties having more than 20 percent of the seats, negotiations dragged on for nearly two years, and the country went without an elected leader for 589 days.

In Germany, it took six months to form a government after elections last September. Similarly, the Netherlands took seven months to form a government last year.

In 2015, voters in Spain produced such a fragmented result that the country went to the polls again a year later.  A headline in the country’s main newspaper after the initial result summed up the view of many: “Welcome to Italy.”

All of these countries use a type of proportional system.

Too big to fail

As a fledgling democracy following the defeat of fascism in World War Two, Italy adopted a proportional system that quickly became legendary for the short life span of its governments. Between 1948 and 1994, Italy had 46 governments — an average of a government every year.

A referendum in 1993 led to changes in the electoral law, and between 1994 and 2006, Italy had six governments — a doubling of their life expectancy. But parliament changed the law again in 2005, introducing a hybrid system that was eventually struck down by the courts.

The recent return to a proportional system is the product of this chaotic process. Italy has experience in managing without a properly functioning government, as Belgium did for almost two years, and so far financial markets have taken the extended horse-trading in stride.

Since Greece’s debt crisis exploded in 2009, authorities have put new institutional mechanisms in place to ensure the stability of the euro and the financial system.

But with as much debt as the market value of Facebook, Apple, Amazon and Google combined, Italy is simply too big to be allowed to fail.


A correspondent and editor in Europe and the United States for more than two decades, Tiziana Barghini has reported on Popes, mobsters and political crises. She led Reuters coverage of the euro crisis in southern Europe before moving to New York where she tackled the U.S. political economy including Detroit’s bankruptcy and the U.S. public pension system.

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