Pyrford Perspectives: What’s going on in Italian politics?

The team at Pyrford investigate the disappointing levels of productivity growth around the world.
September 2019

Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

The Italian Prime Minister, Giuseppe Conte, resigned on 20 August and promptly launched a withering attack on his deputy, Matteo Salvini.

Mr Salvini leads the anti-immigrant far-right League party, which was in coalition with the populist anti-establishment Five Star Movement until early August when Mr Salvini pulled the plug by announcing he could no longer work with his coalition partner. Mr Conte, a law professor with no previous political experience, was installed as a compromise prime minister 14 months ago. He is not a member of any political party but is considered an ally of the Five Star Movement.

In a hastily cobbled together marriage of convenience, a new coalition has now been arranged between the Five Star Movement and the former opposition, the centre-left Democratic Party. It has been agreed that Mr Conte will again be prime minister, frustrating Mr Salvini’s leadership ambitions despite his party being the most popular amongst the voters. So we now have the odd situation where Five Star has moved from a coalition with a right-wing party to one with a centre-left party. Does this sound like a stable long-term arrangement? Meanwhile, Mr Salvini will be biding his time in the wings. Expect more ructions.

Leading Italy is a tough gig. It is surprising anyone wants the job. The country can’t grow fast enough to escape its huge public debt burden, the banking sector remains in a fragile condition and the ageing population provides the most adverse context for growth in Western Europe. And, of course, being part of the eurozone provides no exchange rate manoeuvrability, while fiscal flexibility is strictly limited.

Risk warnings

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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