(Bloomberg) -- A right-wing coalition has a strong shot at ruling Italy after the elections this fall, but whoever succeeds Mario Draghi as prime minister faces a daunting task.
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Parties have already launched into their first-ever summer of electoral campaigning, with polls showing Giorgia Meloni’s Brothers of Italy and Enrico Letta’s Democratic Party are head-to-head. But thanks to Italy’s coalition system, Meloni’s bloc could win a solid majority in parliament. That’s barring major reversals ahead of the September 25 voting. Market turmoil, the war in Ukraine and unpredictable politics could present ample opportunities for just such an event.
The new administration won’t be in place before the start of November at the earliest, and its first task will be approving a budget law before the end of the year. It will also have to deal with a long list of unfinished business, including the sale of Banca Monte dei Paschi di Siena SpA and the merger of the network of phone carrier Telecom Italia SpA. What’s more, it will have to reassure international partners that it won’t deviate from Draghi’s strong support for Ukraine, will complete reforms to secure the next -- 21.8-billion-euro ($22.3 billion) -- tranche of European Union aid funds and negotiate new budget rules for the euro area.
Italy faces a triple challenge of mounting inflation, rising interest rates and potential energy shortages. In that respect, it may be difficult for Draghi’s successor to match the track-record of the ex-European Central Bank head, who signed energy deals with several countries and ensured above-forecast growth while keeping debt on a downward track.
Even within coalitions, parties are divided and may struggle to find an accord on the new government and its policies. While positions are still fluid with two months of campaigning ahead, below are the starting positions:
Meloni’s Brothers of Italy benefited from being the only major party opposing Draghi, while Matteo Salvini’s anti-immigrant League and Silvio Berlusconi’s Forza Italia were in the ruling coalition. But the bloc was united again when League and Forza Italia decided to withdraw their support and trigger early elections.
A right-wing coalition could win around 60% of the seats in the next parliament, according to calculations by YouTrend and Cattaneo Zanetto & Co. Meloni would likely be the candidate to be prime minister if her Brothers of Italy party were to come significantly ahead of partners.
Read more about Giorgia Meloni here
But a narrow lead and coalition divisions could open the door to others, including former ministers such as Letizia Moratti and Giulio Tremonti.
Right-wing parties will likely campaign on a mix of fiscal largess and nationalist policies, which might unsettle markets and set up a fight with EU partners. JPMorgan’s Marco Protopapa sees “a considerable potential for conflict with the EU, although no longer because of Italexit concerns, but on account of a declared aversion to fiscal restraint and some reforms.”
Salvini on Thursday vowed to lower the retirement age and cancel past taxes, while Meloni promised more spending to cushion families and small businesses from the impact of higher energy costs. Berlusconi also promised to raise pensions.
While a right-wing government will probably adopt restrictive immigration policies like the ones enacted by Salvini when he was interior minister in 2018-19, divisions might emerge on international stances. Meloni has been careful to position herself as pro-NATO and pro-Ukraine in continuity with Draghi, while Salvini and Berlusconi have criticized weapon deliveries to Kyiv and have historically had strong ties with Russian President Vladimir Putin.
The establishment Democratic Party was Draghi’s staunchest supporter and its leader Letta is already trying to campaign on a promise of continuity with the outgoing premier’s policies.
Democrats have been almost continuously in power since 2011. But their path to victory has narrowed after the Five Star Movement triggered the crisis that led to Draghi’s ouster, which makes an alliance unlikely.
Still, Letta is banking on voters choosing to punish politicians who turned their backs on Draghi. One option for him is to seek the support of a constellation of smaller centrist parties, including Matteo Renzi’s Italia Viva and Carlo Calenda’s Azione, as well as former Berlusconi allies who left his party in protest against the decision to ditch Draghi.
Read Bloomberg TV’s interview with Democrat leader Enrico Letta
Giuseppe Conte, Draghi’s predecessor as premier, started the crisis boycotting a confidence vote last week. But for now he stands to gain little from early elections, with polls signaling Five Star would get less than a third of the votes it had in the 2018 elections.
Conte is trying to steer the movement to the left while reviving its anti-establishment and anti-EU roots. He also wants to focus on social spending and appeals for talks with Russia rather than arming Ukraine. But Five Star remains deeply divided, especially after the exit of Foreign Minister Luigi di Maio, a firebrand leader turned Draghi loyalist.
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