Since Monti's appointment in November 2011, his government has been sustained in parliament by the two main political forces in Italy: Berlusconi's center-right People of Freedom party and the center-left Democratic Party, led by Pier Luigi Bersani. This uneasy coalition survived for several reasons. First, none of the major parties were strong enough to oust the government and call for early elections. The parties wanted the technocrat Monti, rather than a professional politician, driving the difficult reforms to the Italian economy. To avoid facing competition from Monti in the future, the parties asked him to promise that he would not be a candidate in the parliamentary elections in early 2013.
Second, the People of Freedom party and the Democratic Party have so far spent most of 2012 debating the reform of the electoral system. Although the parties differ in their proposals, both are interested in creating a new system that rewards large parties and reduces the presence of small parties in parliament. Consequently, Italy's main parties want time to pass the reforms before the next election.
The Main Actors
Polls suggest that the Democratic Party will receive the most votes in the 2013 election. However, the party is currently struggling with divisions between its left wing, led by Bersani, and its right wing, led by the popular mayor of Florence, Matteo Renzi. The left wing has strong ties with the Italian unions, which want to reverse some of Monti's main policies, including the reform of the labor law. Some among the left wing have also suggested annulling Monti's pension reform. However, if the Democratic Party were to win the election before overcoming its internal tensions, its government could fall quickly.
The People of Freedom party lost popularity after Berlusconi's resignation, but the former prime minister has suggested that he would be a candidate again. Berlusconi likely will increase his populist and anti-European rhetoric; his recent criticism of the EU fiscal compact asserted that Berlin's imposed austerity measures only generate recession and unemployment.
The center-right, like the center-left, also wants to rescind some of Monti's recent reforms. In a Sept. 17 interview with the Il Giornale daily, Berlusconi said his party would abolish a tax on homes that generates 20 billion euros ($26 billion) per year — one of the pillars of Monti's austerity policies.
Anti-establishment parties are likely to be significant players in the upcoming elections. The Five Star Movement, led by comedian Beppe Grillo, had an impressive performance in May's local elections, in some cases surpassing traditional parties. The Five Star Movement criticizes the corruption of the Italian political class and opposes the austerity measures dictated by Brussels.
According to recent polls, the Five Star Movement could receive 10-15 percent of the vote in 2013. Although it will not be able to lead a government on its own, its political weight could increase if elections lead to a hung parliament, where alliances will be essential to form a government. Given its strong anti-establishment rhetoric, it would be unlikely that the party would form a government with the traditional parties, but it could seek alliances with other smaller parties.
In recent weeks, Ferrari chief Luca Cordero di Montezemolo has been discussing the possibility of becoming a candidate at the head of a coalition of centrist forces. If his candidacy is confirmed, it could alter the Italian political landscape and weaken the traditional parties.
The Challenges Ahead
Monti's government was relatively successful in its attempt to implement structural reforms and ease the pressure from financial markets. However, international investors fear that the next government could reverse some of those reforms. This fear is already creating pressure on Italy. If the political parties decide to reverse major reforms, the markets could react negatively, which would increase Italy's borrowing costs and put the country closer to needing assistance from the European Central Bank and the European Stability Mechanism — something that Rome has so far managed to avoid. This would create further financial instability in the eurozone at a time when the European Union will be debating the next steps of the integration process, including the formation of a banking union and deeper political integration.
Therefore, the next elected Italian government will face several challenges. First, it will attempt to generate economic growth and create jobs in a country mired in recession. It will be forced to do so while trying to maintain the confidence of the markets.
Second, the new government will have to build a working relationship with Brussels and Berlin. Both the center-left and center-right have criticized the austerity policies advocated by Germany. Italy's new leaders will be forced to start almost from scratch in building ties with Berlin.
The biggest challenge for the new Italian government will be to build a stable coalition that can approve policy changes. Italy has a long tradition of political instability, which explains much of its economic instability. Given the number of challenges that the new government faces, that political instability is unlikely to end with the elections and will very likely increase during the transition from Monti's technocratic government.
