Italy

Politics:

• Analysis

  Italy politics: Quick View - Centre-left leader given an "exploratory manda

  Event

  On March 22nd Italy's head of state, Giorgio Napolitano, gave the centre-left leader, Pier Luigi Bersani of the dominant Partito Democratico (PD), an "exploratory mandate" to try to muster support in parliament to form a government.

  Analysis

  It was widely expected that at the end of the ritual two days of consultations Mr Napolitano would give Mr Bersani an "exploratory mandate" to see if he can form a workable majority in parliament. However, there is a high risk that Mr Bersani will fail. In the February general election the PD-dominated centre-left obtained an absolute majority of seats in the Chamber of Deputies (the lower house), but because of the quirks of the Italian electoral laws, not in the Senate (the upper house). In the 315-seat Senate the centre-left has 119 seats. Mr Bersani can almost certainly count on the support of the centrists that backed the outgoing prime minister, Mario Monti, but they have just 18 Senate seats. That leaves him still needing the support of at least 21 senators from either the centre-right Popolo della Libertà (PDL), led by a controversial former prime minister, Silvio Berlusconi, or the anti-establishment protest movement, Movimento 5 Stelle (M5S), led by a former comedian and satirist, Beppe Grillo.

  In the immediate aftermath of the vote Mr Bersani ruled out the possibility of forming another government coalition with Mr Berlusconi (the PD and the PDL were the main parties that backed the technocratic government formed by Mr Monti in November 2011). Since the election Mr Berlusconi has offered his party's support to form a grand coalition, on condition that the centre-left backs his party's candidate for the presidency. The new parliament must elect a new president when Mr Napolitano's mandate expires in May.

  Since the election Mr Grillo, whose movement won nearly as many votes as the PD, has repeatedly rejected Mr Bersani's calls to back his post-election programme of political reforms and less fiscal austerity (the programme was drafted after the election in the hope that it might win over M5S members). Mr Grillo deems Mr Bersani's party to have been as responsible as Mr Berlusconi's for Italy's poor governance during the past 20 years.

  Although Mr Bersani actively sought the opportunity to try to form a government, the exploratory mandate accorded him is a poisoned chalice. Failure to form a government would probably mark the end of his leadership of the centre-left, while "success" as a result of a deal with Mr Berlusconi would seriously damage his party's already declining public support and drive more centre-left voters towards the M5S.

  March 25, 2013

• Background

  Italy: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: The government of technocrats with no political affiliation formed by Mario Monti in November 2011 is supported in parliament by parties on the right, left and centre. The main parties are the centre-right Popolo della Liberta (PDL) led by Silvio Berlusconi, Mr Monti's predecessor, and several parties that were in opposition until the Monti government was formed, including the centre-left Partito Democratico (PD) and the parties in a smaller centrist alliance known as the Terzo Polo (Third Pole). The Lega Nord, which was part of the Berlusconi government, is now in opposition.

  Local elections; first round May 6th-7th
  	General election	Local elections
  	2008	2012
  Popolo della Liberta (PDL)	37.6	11.6
  Total centre righta	39.9	25.7
  Partito Democratico (PD)	33.9	16.4
  Italia dei Valori (IDV)	5.2	4.6
  Sinistra Ecologia Liberta (SEL)	-	2.6
  Verdi	3.3	2.2
  Total centre-lefta	43.1	37.7
  Unione di Centro (UDC)	5.7	5.0
  Other centrists	2.0	11.5
  Total centrist bloc	7.7	16.5
  Lega Norda	6.4	2.7
  Movimento 5 Stelle	0.0	7.1
  Others	2.9	6.5
  Total	100.0	100.0
  a Including civic lists supported at least one of the parties in the bloc.

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  Next elections: The next parliamentary election is due in April 2013. By May 2013 an electoral college of the Senate (the upper house), the Chamber of Deputies (the lower house) and regional representatives is due to elect the president. Besides the mayoral election in Rome due in April 2013, elections are not due in any major city until 2016. Elections in 15 of Italy's 20 regions are due in early 2015.

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  July 24, 2012

• Structure

  Italy: Political structure

  Official name

  Italian Republic

  Legal system

  Based on constitution of 1948

  National legislature

  Bicameral: Senate of 315 seats; Chamber of Deputies of 630 seats

  National elections

  February 24th-25th 2013; next election February 2018

  Head of state

  The president, elected for a seven-year term by an electoral college of the Senate, the Chamber of Deputies and regional representatives, has no executive powers. Elected in May 2006, the term of the current president, Giorgio Napolitano, runs until mid-May 2013

  National government

  Council of Ministers headed by a prime minister, appointed by the president on the basis of ability to form a government with parliamentary support. The current technocratic government, which is led by Mario Monti, will remain in office in a caretaker capacity until a new government is formed

  Political coalitions and parties

  The main parties represented in parliament include the centre-right Popolo della Libertà (PDL), a merger of the former Forza Italia (FI), Alleanza Nazionale (AN), Democrazia Cristiana per le Autonomie (DCA) and several other micro parties. In 2010 a group of PDL deputies formed a new centrist party, Futuro e Libertà per l'Italia (FLI). This formed and alliance with the Unione di Centro (UDC) and the Alleanza per l'Italia (API) to back Mario Monti in the February 2013 general election. The dominant centre-left party, Partito Democratico (PD), is allied with the leftist Sinistra Ecologia e Libertà. There are two significant regional parties: the Lega Nord in the north and the smaller Movimento per le Autonomie (MPA) in the south. The anti-establishment, protest movement, Movimento 5 Stelle (M5S), which was formed in 2009, rose to prominence in 2012 and won more votes than any other single party in the February 2013 general election

  Cabinet ministers

  Prime minister: Mario Monti

  Secretary to the cabinet: Antonio Catricala

  Ministers with portfolio

  Agriculture: Mario Catania

  Culture & heritage: Lorenzo Ornaghi

  Defence: Giampaolo Di Paola

  Economic development, infrastructure & transport: Corrado Passera

  Economy & finance: Vittorio Grilli

  Education, universities & research: Francesco Profumo

  Employment & social affairs: Elsa Fornero

  Environment: Scorrado Clini

  Foreign affairs: Giuliomaria Terzi di Sant'Agata

  Health: Frenato Balduzzi

  Interior: Anna Maria Cancellieri

  Justice: Paola Severino Di Benedetto@S1=Ministers without portfolio

  Ministers without portfolio

  Europe: Enzo Moavero Milanesi

  International co-operation & integration: Andrea Riccardi

  Parliamentary relations: Piero Giarda

  Territorial cohesion: Fabrizio Barca

  Tourism & sport: Piero Gnud

  Central bank governor

  Ignazio Visco

  March 13, 2013

• Outlook

  Italy: Key developments

  Outlook for 2013-17

  • The February 24th-25th general election has increased political uncertainty. The centre-left won an absolute majority in the lower house of parliament, but not in the upper house, hindering the formation of a government.
  • The Economist Intelligence Unit's baseline forecast is that even if a government is cobbled together, there will be a return to the polls in the next six to 12 months and another increase in the large protest vote, prolonging instability.
  • The inconclusive election result means that major economic reforms are likely to remain on hold for some time. However, we expect that the reforms carried out by Mario Monti's technocratic government will remain in place.
  • We expect the fiscal deficit to shrink further in 2013, but owing to the effect of the recession on revenue, and rising debt-servicing costs, the budget will remain in deficit during the forecast period.
  • The public finances will remain vulnerable to shifts in investor sentiment. Rolling over public debt equivalent to 127% of GDP at end-2012 may require indirect support from external actors, notably the European Central Bank.
  • Real GDP declined by an estimated 2.4% in 2012. We forecast a further contraction of 1.5% in 2013 before the economy returns to moderate growth of about 1% a year in 2014-17.

  Review

  • The centre-left, led by Pier Luigi Bersani, gained a disappointing 29.5% share of the popular vote, winning the narrowest of victories over Silvio Berlusconi's centre-right alliance, which took a better than expected 29.2% of the vote.
  • A record 25% of those eligible to vote abstained, and around 25% of those who did vote supported the protest movement, Movimento 5 Stelle (M5S), led by a former comedian and satirist, Beppe Grillo.
  • The large protest vote was a firm rejection of the EU-backed fiscal austerity policies implemented by the Monti government, but also of Italy's discredited political elite.
  • In the immediate aftermath of the election share prices fell across Europe and Italian government bond yields rose. After a few days, however, ten-year government bond yields eased again to around 4.6%.
  • The general government deficit was 3% of GDP in 2012 compared with 3.9% in 2011, but a primary surplus (excluding interest payments) of 2.5% of GDP was not sufficient to prevent the public debt/GDP ratio from rising sharply to 127%.
  • According to Istat, real GDP is estimated to have contracted by 2.4% in 2012 (downwardly revised from its previous estimate of 2.2%).

  March 13, 2013

Economy:

• Background

  Italy: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	61.0	Population growth	0.5
  GDP (US$ bn; market exchange rate)	2,017	Real GDP growth	-1.4
  GDP (US$ bn; purchasing power parity)	1,991	Real domestic demand growth	-1.9
  GDP per head (US$; market exchange rate)	33,086	Inflation	2.4
  GDP per head (US$; purchasing power parity)	32,663	Current-account balance (% of GDP)	-2.4
  Exchange rate (av) €:US$	0.778b	FDI inflows (% of GDP)	0.8
  a The Economist Intelligence Unit estimates. b Actual.

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  Background: Post-war Italy has been characterised by a weak political structure and a relatively strong, but recently declining, economic base. Between 1996 and 2011 Italy had a bipolar political system, dominated by a right-of-centre alliance led by Silvio Berlusconi and a broad left-of-centre coalition. Since 2011 two more groups have emerged: a centrist alliance and a protest movement, Movimento 5 Stelle (M5S). In November 2011 a government of "technocrats" led by Mario Monti was formed. Following a general election in February 2013 it remains in place in a caretaker capacity.

  Political structure: Parliament is elected for a maximum of five years. The president, who is elected by parliament for a seven-year term, decides, in the event of a political crisis, whether to call an election or to nominate a prime minister to try to form a government. He also promulgates laws and may return a law to parliament for reconsideration, but he has no power of veto. Executive power lies with the cabinet, which is nominated by the prime minister and approved by parliament. The prime minister cannot dismiss ministers without forming a new government. The current proportional voting system, which awards bonus seats to the winning coalition on a regional basis in the Senate (the upper house) and on a national basis in the Chamber of Deputies (the lower house), remains a source of political instability.

  Policy issues: Key issues are the management of, and attempts to reduce, Italy's large public debt (which reached 127% of GDP in 2012), safeguarding the banking system and keeping Italy in the euro zone. There is a risk of default, a banking crisis and enforced departure from the euro zone. The Monti government carried out some structural economic reforms to boost long-term economic growth, given a poor record relative to comparable economies over the last 15 years.

  Taxation: The top rate of personal income tax is 43% and social security contributions are high, especially for employers. The corporation tax rate is 27.5%, but additional regional and municipal taxes are levied, including the regional business tax (IRAP) to fund health services. The basic rate of IRAP is 3.9%, but a higher rate of 5% can be applied in regions with large healthcare deficits. There are two tax rates on savings (27% on interest and 12.5% on income from financial investments).

  Foreign trade: The value of exports of goods (fob) was US$502bn and imports (fob) stood at US$477bn in 2012. The current-account deficit narrowed sharply to US$11.9bn, or 0.6% of GDP, from around 3.5% of GDP in 2010 and 2011.

  Major exports 2011	% of total	Major imports 2011	% of total
  Mechanical machinery	18.2	Natural gas & oil	17.3
  Metals & metal products	12.9	Metals & metal products	10.6
  Textiles, clothing & leather goods	11.2	Transport equipment	9.5
  Transport equipment	9.7	Computers, electronic equipment & electrical machinery	7.5
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	13.1	Germany	15.6
  France	11.6	France	8.3
  US	6.1	China	7.3
  Spain	5.3	Netherlands	5.2
  EU27	56.0	EU27	53.3

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  March 13, 2013

• Structure

  Italy: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 13, 2013

• Outlook

  Italy: Country outlook

  Italy: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The outcome of the general election on February 24th-25th 2013 has created greater political uncertainty than the Economist Intelligence Unit had anticipated. A record 25% of those eligible to vote abstained, and around 25% of those who did supported the anti-establishment, anti-fiscal-austerity and Eurosceptic protest movement, Movimento 5 Stelle (M5S), led by a former comedian and satirist, Beppe Grillo. The centre-left, led by Pier Luigi Bersani, narrowly won the popular vote and control in the Chamber of Deputies (the lower house), but because of the quirks of Italy's deeply flawed electoral system fell well short of an absolute majority in the Senate (the upper house). The strong performance from M5S, and a weaker than expected showing by the centre-left and the centrists backing the outgoing technocratic prime minister, Mario Monti, has complicated the process of forming Italy's next government. Our baseline forecast is that even if a government is cobbled together to pass a reform of the electoral laws and keep Italy's public finances on track, there is likely to be a return to the polls in the next six to 12 months and another increase in the protest vote, which would further damage the established political parties. The recessionary effects of fiscal austerity in Italy and elsewhere in the euro zone; high unemployment, especially among young Italians, who make up a large portion of M5S's voters; and financial market volatility will continue to test political and social stability, making it unlikely that the next government (and even the one after that) will survive a full five-year parliamentary term.

  ELECTION WATCH: Given the high level of fragmentation in the parliament elected on February 24th-25th, we expect Italy to have to vote in fresh elections in the next six to 12 months. Before that, parliament will be called on to elect a new head of state to succeed the incumbent, Giorgio Napolitano, whose term ends in May 2013. Because Italy's electoral laws were largely responsible for producing a hung parliament, the new parliament will be under intense pressure to reform the voting system before another election is called. Predicting the outcome of that election is difficult because the political scene is highly fragmented and in a state of flux. The unexpectedly strong protest vote has shaken the established centre-right, centre-left and centrist parties. With the exception of Mr Grillo, no other leader is secure. If Mr Bersani is unable to form a government, he may face a leadership challenge before the next election. Silvio Berlusconi, a former prime minister, appears less vulnerable thanks to his centre-right coalition's late surge in the February election, but he is likely to have to step back from frontline politics again because no other party will form an alliance with the centre-right if he remains leader. After a disappointing electoral performance, Mr Monti's star has waned. He is viewed as the architect of Italy's programme of austerity, which was resoundingly rejected by voters in the election.

  INTERNATIONAL RELATIONS: Under Mr Monti, Italy's international standing improved, especially in Europe. However, owing to renewed political instability and rising support for Eurosceptic political forces, much of Italy's renewed credibility evaporated after the February 2013 general election. Italy will remain for some time a risk to the survival of the euro zone and the stability of its financial sector. We do not expect the election result to alter drastically Italy's pro-US foreign policy, but the next government will come under pressure from the growing anti-establishment vote and its representatives in parliament to scale back Italy's participation in international peacekeeping missions. We expect Italy to continue to support US and EU policies against the Iranian nuclear programme.

  POLICY TRENDS: Uncertainty regarding the composition of the next government and the direction of economic policy leaves Italy vulnerable to shifts in investor sentiment, especially if investors believe that the country's commitment to fiscal consolidation and liberalisation is unlikely to be maintained. Its public debt stands at an estimated 127% of GDP as of end-2012 (the largest in absolute terms in the EU and over 20% of the euro area total) and its economic growth prospects remain poor. If government bond yields rise sharply, Italy could be forced to seek external financial support from the European Central Bank (ECB) and the European Stability Mechanism (ESM).

  ECONOMIC GROWTH: Owing to greater fiscal austerity, a deterioration in business confidence and weakening external demand, the Italian economy has been in recession since mid-2011, and we expect it to remain there in 2013. Real GDP contracted by an officially estimated 2.4% in 2012, after moderate growth in 2011. We are forecasting another contraction in 2013, of 1.5% (revised down from 1.2% previously). Our baseline forecast is that the economy will return to growth of about 1% a year in 2014-17. The acceleration will depend on moderately stronger demand elsewhere in Europe and an improvement in consumer and business sentiment in Italy. A more prolonged dip in economic performance is a risk if fiscal consolidation in Italy and elsewhere in the EU depresses demand by more than we expect in our central scenario, or if increased domestic political instability keeps business and consumer confidence depressed, further delaying a recovery in domestic demand.

  INFLATION: Annual average consumer price inflation (on the EU harmonised measure) slowed to 2.6% in the fourth quarter of 2012, having averaged around 3.5% during the first nine months of the year. We expect it to slow further to average 2% in 2013 and 1.8% in 2014, reflecting weak aggregate demand growth and modest wage increases, before edging up to just over 2% a year in 2016-17. Although wages have risen in nominal terms, they are still negative in real terms. We believe that wage growth will remain moderate, given continued weakness in the labour market.

  EXCHANGE RATES: The euro has strengthened since mid-2012 as the debt crisis in the single currency zone has eased and as global risk tolerance has increased. The euro reached US$1.37:EUR1 in late January before retreating to US$1.30:EUR1 in mid-March. The euro's appreciation will be capped by continuing weakness in euro zone economies, as well as stronger growth in the US. We expect the euro to average US$1.33:EUR1 in 2013 and US$1.28:EUR1 in 2014-17, although there is a significant risk of sharp movements either way. Over the medium term, the possibility of a break-up of the euro zone cannot be discounted.

  EXTERNAL SECTOR: We expect the marked improvement recorded in the current-account balance in 2012 to be maintained during the forecast period. From a deficit of 3.3% of GDP in 2011, the gap narrowed to an officially estimated 0.6% of GDP in 2012. The current account is forecast to remain close to balance in 2013-17, and to post surpluses during the second half of the forecast period. This reflects several factors: weak import growth, as a result of depressed domestic demand, and moderately stronger growth in exports of goods and services from 2014.

  March 08, 2013

• Forecast

  Italy: Country forecast summary

  Country forecast overview: Highlights

  • The result of the general election on February 24th-25th 2013 has increased political uncertainty. The centre-left won an absolute majority in the lower house of parliament, but not in the upper house, hindering the formation of a government. The Economist Intelligence Unit's baseline forecast is that even if a government is cobbled together, there will be a return to the polls in the next six to 12 months and probably a rise in the large protest vote, prolonging instability.
  • Only part of the economic reform programme of the technocratic government led by Mr Monti was implemented before the general election was called. It has helped to improve the public finances but is unlikely to boost Italy's dismal economic growth prospects, at least in the short term. The inconclusive election result means that further economic reforms are likely to remain on hold for some time. However, we expect that the reforms carried out by Mario Monti's technocratic government will remain in place.
  • Although we expect the government's fiscal consolidation plans to continue to generate large primary surpluses (the budget balance excluding interest payments on public debt), averaging about 3.5-4% of GDP a year in 2015-17, we forecast that the interest payments/GDP ratio will also rise to an average of close to 6% of GDP a year, causing the government balance to remain in deficit.
  • Rolling over Italy's public debt, which reached 127% of GDP in 2012, will be arduous, and may require further indirect support from external actors, notably the European Central Bank (ECB), although in future this will come only with tough conditions attached that will tie the hands of the government. A risk is that if such help were needed, it might not be available or prove sufficient, which could result in default, a banking crisis and forced departure from the euro zone.
  • Real GDP is officially estimated to have contracted by 2.4% in 2012. We forecast a further decline of 1.5% in 2013, followed by a return to modest growth in 2014-17. A more prolonged dip in economic performance is a risk if increased domestic political instability keeps business and consumer confidence depressed. Weak domestic demand and stronger (albeit still sluggish) export growth should keep the current account close to balance during 2013-17, having narrowed to an officially estimated 0.6% of GDP in 2012, from 3.3% in 2011.
  • We expect consumer price inflation to slow from an average of 3.3% in 2012 to 2% in 2013 and 1.8% in 2014, before picking up to just over 2% a year in 2016-17. A weak euro and rising oil prices from 2014 will prevent a sharper deceleration.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-2.4	-1.5	0.8	1.1	1.0	1.1
  Consumer price inflation (av; %)	3.3	2.0	1.8	2.0	2.2	2.1
  Consumer price inflation (av, %; EU harmonised measure)	3.3	2.0	1.8	2.0	2.2	2.1
  Budget balance (% of GDP)	-3.0	-2.3	-2.2	-2.1	-2.0	-2.1
  Current-account balance (% of GDP)	-0.6	-0.1	-0.2	0.4	0.6	0.8
  Short-term interest rate (av; %)	0.6	0.3	0.6	1.1	1.8	1.8
  Exchange rate US$:€ (av)	1.29	1.33	1.31	1.27	1.26	1.26

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  March 13, 2013

View detailed map

Country Briefing

Total area

301,333 sq km (2000 estimate), of which 38% arable and permanent crop, 15% pasture, 21% forests (1999)

Population

60.851m (Istat; end-2011 estimate)

Main towns

Population in '000 (January 1st 2006):

 Rome (capital; Roma): 2,547

 Milan (Milano): 1,308

 Naples (Napoli): 984

 Turin (Torino): 901

 Palermo: 671

 Genoa (Genova): 620

Climate

Mediterranean

Weather in Rome (altitude 17 metres)

Hottest month, July, 20-30°C (average daily minimum and maximum); coldest month, January, 4-10°C; wettest month, November, 129 mm average rainfall; driest month, July, 15 mm average rainfall

Language

Italian. German is a minority language in Trentino-Alto Adige, French in Valle d'Aosta and Slovenian in Friuli-Venezia Giulia. There are many regional dialects

Measures

Metric system

Currency

The euro (€)

Fiscal year

Calendar year

Time

One hour ahead of GMT in winter, two hours ahead in summer

Public holidays

January 1st and 6th; Easter Monday; April 25th; May 1st; June 2nd; August 15th; November 1st; December 8th, 25th and 26th

January 11, 2013