Italy’s Right May Be Headed for a Landslide Win. NewsWire

NewsWire: 9/7/22

• With under a month to go, the right looks poised for a decisive electoral victory in Italy. Support for Italy’s Democratic Party is almost as high as that for Brothers of Italy--but the right, unlike the left, has been able to forge a powerful coalition. (Financial Times)
  
• NH: As the clock counts down to Italy’s next general election, it’s looking increasingly likely that Brothers of Italy’s Giorgia Meloni will become Italy’s first female prime minister.
• In an earlier piece, we broke down the political trends that have put Meloni and her right-wing coalition on course to win. (See “Italy’s Hard Right Set for Election Victory.”) But the right isn’t just expected to win. Pollsters predict that it will capture a solid 60% of parliament seats. While this falls just short of the two-thirds majority needed to change the constitution, a majority of this size hasn’t been seen in Italian government in the past three decades.
• The right’s electoral strength lies in its unity. Overall, the right’s coalition is polling at 45%. But it is poised to win an even larger share of seats in parliament because of its advantage in first-past-the-post races, which constitute a third of Italy’s parliamentary seats.
• With the left split into three squabbling factions, at least 75% of the first-past-the-post seats are expected to go to right-wing candidates. Combined with the seats allocated by proportional representation, the right’s anticipated share of parliament rises to 60%. While a more united left would be unlikely to stymie Meloni completely, it would almost certainly cut down on the right’s majority.
• Already, pundits are speculating what might be ahead for Italy with Meloni as PM. She has rushed to reassure markets and international allies that, despite railing against the EU for years, she has no interest in leaving it. She even released a video in English, French, and Spanish insisting that there will be no “anti-democratic drift” or “authoritarian turn” if she wins. She also tried to distance herself from BOI's origins and likened her party to U.S. Republicans or the U.K.'s Conservatives.
• Yet despite Meloni's attempts to remold her image, there are clear differences between her party and those she cites. The Italian right's agenda remains very populist. The coalition is committed to aggressive fiscal expansion, with plans to cut taxes and introduce a universal minimum pension. That marks a huge departure from the market-oriented neoliberalism of Lega, and it could put Italy on a collision course with the EU and the ECB.
• The BOI, moreover, remains unapologetic about its heritage. Its tricolor flame emblem comes from the Italian Social Movement, the neo-fascist party that was founded post-World War II by Mussolini supporters. Once in power, Meloni won't be able to appease both the far right and the mainstream. Something will have to give. 
• All of this uncertainty adds up to a moment of extreme turbulence for Italy. Investors are already lining up to wage against the country's future. In August, the total value of Italian government bonds shorted by hedge funds reached its highest level since January 2008. Meanwhile, in recent months, the spread between 10-year Italian and German government bonds has neared levels not seen since Covid-19 hit.

• In the months leading up to the pandemic, the bond spread was consistently under 2.0 percentage points. Its most recent peak came on March 17, 2020 at 2.79 percentage points. But the spread began widening again this summer amid rising inflation, which sparked the ECB to hold an emergency meeting announcing that it will create a new tool intended to shield weaker eurozone economies from the effects of higher interest rates. After that, the spread fell once more. But the ECB's power only goes so far. With the prospect of a Meloni win ahead, concerns about the solvency of Italy's economy are surging yet again.