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December 07, 2016

Matterella says No to early elections

The big political news from Italy is that the president, Sergio Mattarella, has denied the request of Matteo Renzi for early elections. As the Huffington Post Italia reports, Matterella made it clear to Renzi that he will not accept elections until the voting systems for the chamber of deputies - recently reformed - and the Senate are homogenised. Huffington Post quotes the Quirinale as saying that it was inconceivable for elections to be held under the current voting rules. The article says that Matterella's decision has forced Renzi to change tack. He is now seeking a grand coalition interim government - supported even by the Five Star Movement and the Lega - as an act, we presume, intended to produce so much chaos that the Italian electorate might ruefully come back to him and ask him to lead the country. Tensions are also growing inside the PD, and it is not clear at all whether Renzi can stay as the party leader.

Because of Matterella’s quick decision, we are now looking at elections at the earliest in late March or early April, and possibly even later. One obstacle is the Constitutional Court, which will hear a complaint about the electoral law for the chamber of deputies, also known as the Italicum, on January 24. It is possible, for example, that they might strike out the so-called bonus to the largest party, intended to guarante a majority. But this means that the Italicum will have to be amended in accordance with the ruling, and that a corresponding voting system will need to be introduced for the Senate, a necessity since the No vote left the Senate in place. That constitutional court's judgement on the Italicum will of course have to be taken into account when the new government draws up an electoral law for the Senate.

Stefano Folli makes the observation that only a day after his devastating loss Matteo Renzi is behaving like the winner, and contrasts his raucous behaviour to that of David Cameron, who lost with a much better result. Folli notes that Renzi is fighting a war on two fronts. He wants to bulldoze the president into early elections, and to remain leader of his party - a battle he is not going to win. 

Corriere writes that Matterella’s decision after consultation with party leaders means that there will be no elections in February, as Renzi wanted, not even necessarily in the spring. So we are looking at a rather long period of technical government ahead.

Matterella has laid down a number of criteria for the interim government. He wants it to stabilise relations with the EU, stabilise the economy and in particular the financial sector. It appears to us that a technical government is the most likely outcome, but given the delays in drafting a new electoral law, this government will be in office for an uncomfortably long time. Corriere has a good overview of the laws that are now on hold because of this political crisis, such as various reforms bills. 

So, what about an interim grand coalition government, as proposed by Renzi? Silvio Berlusconi said he was in principle ready to support this, especially since he, too, does not want early elections, as he cannot himself be a candidate before 2018. But he is asking for a rather high price, in particular a guarantee that the new system will be relatively proportional, as well as having ministers in the interim government. It is not clear that this is acceptable to anyone else. 

This is why we think that the most likely outcome is a technical government with a narrow remit, followed by elections in the spring, based on a new, relatively more proportionate, electoral law. And it is far from clear that the parties that support the euro would be able to form a coalition after the next elections.

Among the comments on Italy, we want to highlight one by Jan Techau who notes, in our view correctly, that the Italian No is much more damaging to the EU than the Brexit vote because it touches the eurozone. He argues that Italy has shown itself unwilling and incapable of instituting economic and political reforms. The country prefers to blame others, or listen to the populists, but is unwilling to do what's necessary. Techau is vague on what Italy needs to do. And we disagree with him on his focus on Germany’s role in the destabilisation of the eurozone, which is the result of still ongoing competitive devaluations. But we agree with him that the No vote is indeed a bigger crisis for the EU, because it makes it now virtually impossible, politically, for Italy to create the conditions of a sustainable euro membership.

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December 07, 2016

Looking for alternatives to Valls?

Will the big elephants in the Socialist party accept Manuel Valls? After all he is blamed for moving the party to the right and betraying François Hollande. Supporters of Martine Aubry and François Hollande are looking to find an alternative candidate, writes Cécile Cornudet. Christine Taubira already declined, and there is no consensus on anyone else yet. Two names still seem possible: Marisol Touraine, social and health minister, and Vincent Peillon, former education minister.

For Valls, the opinion polls are not looking good. The latest poll, with fieldwork partly done after his official announcement, sees him at 10% in the first round, behind François Fillon (27.5%), Marine Le Pen (24 %), Emmanuel Macron (13,5 %) and Jean-Luc Mélenchon (12,5 %), according to Le Point. Valls is now calling on Macron and Mélenchon to not be afraid to participate in the left primaries,  Journal du Dimanche reports.

Bernard Cazeneuve, meanwhile, became prime minister as expected. He is a safe pair of hands.

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December 07, 2016

Local taxes and citizenship in Ireland

Fintan O'Toole tells stories of poor morale among the Irish when it comes to local and property taxes, which explains a lot about why water charges are such an explosive subject in Ireland. In the 1990s property, bin, and water taxes were introduced but only paid by a few and abolished eventually. The tax debt of those who did not pay was written off. There were good reasons to boycott those taxes at the time, as they were unfairly concentrated on the Dublin area, did not have enough exemptions for the poor, and treated people like customers rather than citizens. But there is also a simple reason to pay: property and local taxes are an essential part of local democracy. Those who paid these taxes in the last 20 years, including himself, were left feeling duped. So one could argue that the tax was not on water, property, or refuse, but on good citizenship. This time, they won’t fall for the water charges unless there is a real overhaul that relates local communities and their services to their tax base.

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December 07, 2016

Brexit contours

The wait for Brexit is a bit tedious and subject to much noise about entirely meaningless concepts such as "access to the single market". George Eaton writes Theresa May has made a tactical concession. She will reveal her plan for Brexit, in response to a Labour Party motion, which some Tories would support. But she managed to add an amendment to the motion reaffirming parliament’s intention to trigger Article 50. Eaton’s judgement is that a majority in parliament will support Article 50, but a majority will also support membership of the single market (an option, we would point out, that may not even be available from the EU since only the EEA membership allows this). Eaton also quotes a senior Labour MP saying that he would not support the single market if that involved disrespecting the Brexit referendum - so it is not clear to us that the parliament would want to force a single market option in any case. 

And Ashoka Mody is among a small number of analysts who believe that Brexit could have a positive economic effect, by ending a dangerous bubble of foreign inflows in the UK property market which, in turn, drove up the value of the pound. He notes that, after Brexit, the weakness of the pound was strikingly correlated with weakness of property-related asset prices. And the softer the Brexit, the greater the risk that this bubble could blow up again.

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