Italy: A Resignation, and the Road to Elections

Published on November 10, 2014

There has been some speculation in the Italian press over the weekend that President Giorgio Napolitano,as we had come to suspect, may resign in December, a few months before widely expected, and despite requests from Prime Minister Matteo Renzi to stay on until the spring.

*** Napolitano, we believe, will indeed announce his intention to resign, most likely sometime in early January, after which the Italian Parliament will have to vote for a new President in its current formation. Possible candidates for his succession are likely to include several well-known Italian politicians such as former center-left Democratic Party (PD) leader Walter Veltroni, Anna Finocchiaro, and Pierferdinando Casini. They will not include European Central Bank President Mario Draghi, despite repeated rumors to the contrary, and most recently circulated in the German press, that he was interested in the job. To the relief of many and we suspect consternation of some, we fully expect Draghi to stay on as ECB head. ***

*** Elections next spring, and in any case well before the end of the current Parliamentary mandate in February 2018, are very likely, but they will be called by Renzi from a position of strength. The Parliament has recently accelerated the approval of the electoral law and will speed up the process for Senate reform approval as well. Renzi is eager to capitalize on his popularity and the enormous consensus for reforms he has built across the country, and he has shown before that he has little patience for institutional restraints that may come in his way. ***

*** And despite recent talks between Renzi and Beppe Grillo, the leader of the maverick leftist 5-Star movement, the voting bloc that will elect the new President is highly likely rather to include former Prime Minister Silvio Berlusconi’s center-right Forza Italia and Interior Minister Angelino Alfano’s NCD, in addition of course to the PD itself. Indeed the PD’s main middle-man for both the Presidential elections and enactment of legislation before the general elections will be Berlusconi, on the right. ***

An Honorable Retirement

Giorgio Napolitano raised eyebrows in May of 2013 when he accepted a second Presidential mandate, unprecedented in the history of the Italian Republic, to cement an unusual grand coalition at the time between Berlusconi’s then center-right PDL Party, Pierluigi Bersani’s center-left PD, and Mario Monti’s technocratic Civic Choice. It was indeed a delicate moment in Italian history: due to a badly-designed electoral law the 2103 elections had resulted in a hung Senate that made it impossible to select a Prime Minister from any of the three main parties. Napolitano convinced the PD, who had been the “relative” winner, to team up with Berlusconi, whose re-election and pairing with Enrico Letta, a mild centrist, from the PD, as a substitute for Bersani as Prime Minister, embodied the very cynicism of Italian power-sharing politics.

Napolitano remained on as the guarantor of the grand coalition government that had the aim of approving the ever-necessary institutional and economic reforms that Europe asked for. But he also played a crucial role after the semi-retirement of Berlusconi in the subsequent transition of political leadership in the PD from Letta to Renzi, who was seen as much more likely to deliver on the reform agenda that he had sponsored and that Letta had failed to even begin to implement.

The President has often indicated privately that he would put an end to his mandate before turning 90, which is in June 2015, confident that institutional reforms will have been approved by then. But even though reforms have been slightly delayed, his physical condition it appears no longer allows him to continue to handle the rigors of office.

Renzi’s Spring Gamble

If Napolitano resigns in the time frame we expect him to Parliament will elect a new President in January. After that, before Renzi can force new general elections, two conditions will still need to be met.

One is the approval of the electoral law. The second is the end of the process of constitutional reform of the Senate, transforming the upper house into a non-elective Chamber. The new electoral law is premised on the latter happening, and includes a clause that specifies it is valid only for the Lower Chamber, and not the Senate. Constitutional reform of the Senate, however, is a cumbersome process, requiring two readings in each chamber, and a confirmatory referendum in case a two-third majority is not reached.

Both these conditions are nevertheless likely to be met soon, as institutional reforms are a priority for Renzi (who wants the vote) and for the government, and they are not opposed by Berlusconi, who seems increasingly less preoccupied with politics than with the protection of his economic fortunes.

Renzi for his part is eager to demonstrate his strength in the polls, and to cleanse Parliament from the riotous elements of the PD left that were faithful to the old guard. So short of exceptional events such as an even more abysmal economic performance than the already bleak forecast, or a plummet in his approval ratings, there will be little stopping Renzi from forcing an election the day after institutional reforms are approved. And there are indications that he will run on a platform touting the recent budget presented to the EU, underlining the government’s success in passing a responsible budget that does not exclude pro-growth measures.

Should Renzi feel that the other political forces are playing with the clock, he could still force an election by modifying the electoral law to add a clause applying it to the Senate too, in effect punting, for now at least, on constitutional reform of the upper house.

Renzi and Berlusconi’s Move to the Center

In the spirit of the deepening cooperation with Forza Italia, Renzi will negotiate with Berlusconi to come up with a Presidential candidate that is palatable to the former Prime Minister, and that excludes potential candidates like Romano Prodi and even Mario Monti, if anyone can find where he has been hiding. And in spite of all the rumors to the contrary, forget about Draghi. From what we understand Draghi has his hands quite full still saving the Eurozone and has not sought the job, although we suspect there would be quite a few European officials who would like to see him in that position. Perhaps next time around.

In any case, Renzi’s negotiation with Berlusconi will be a relatively easy one: the media tycoon is fond of the Prime Minister, both at a personal level – the two met privately for the first time when Berlusconi was Prime Minister and Renzi still Mayor of Florence – and at a political level. In February it was even floated to us that Berlusconi was prepared to offer Renzi the leadership of the center right, should the PD’s internal opposition from the left wing of the party have forced him to leave.

And there are indications that Berlusconi is willingly letting his voters slip towards Renzi, who is basically pushing large elements of the former Cavaliere’s old political agenda and has left his properties and companies basically untouched. Berlusconi’s media outlets have in turn been notably favorable to Renzi. The boss now seems to see Renzi as his ideological heir – a Liberal (in the European sense of the term), with no ties to the old left establishment of the PD (Renzi comes from the Catholic left of the Christian-Democratic Party, not from the former Communist Party).

To clear the path to a deal Berlusconi has ousted and marginalized members within his own party that have been resistant to an alliance with Renzi, including Raffaele Fitto and Denis Verdini, and in the process upset a good chunk of Forza Italia. But even as Forza Italia slides in the polls, Berlusconi does not appear overly upset, happy to remain in control a smaller party but to continue on under the umbrella of a new, friendly, and stable Renzi government.

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