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September 19, 2019

Italy's 2020 budget will be a moment of truth

The exit of Matteo Salvini from the government has taken some of the hot air out of the 2020 budget. But even without his demands of large tax cuts, the budget process will be extraordinarily difficult. 

Federico Fubini observes that the way ahead for the government is not a narrow path, as Pier Carlo Padoan once put it, but a maze. The only measure everybody agrees on is to avoid an otherwise obligatory VAT increase. That alone will eat up most of the fiscal room for manoeuvre. The various reforms supported by Five Star, the continuation and extension of the citizens' income, the partial undoing of the pension reforms will be hard to do. 

Giuseppe Conte yesterday called the leaders of Italy's three largest trade unions into his office to hear their demands. Corriere della Sera noted this hasn't happened for many years. It is a reminder that this is now a government firmly rooted on the left.

We expect the EU to grant some extra fiscal leeway, but not much. And Italy needs a lot of investment - including in public infrastructure and education.

What will be the influence of Matteo Renzi on this process? Not destructive, but likely to be very disruptive. Lucia Annunziata is no fan of him either, but she argues his exit from the party is important because it reveals that the PD has not managed its passage from opposition to government well. Renzi does not so much pose a danger to the government majority. His game plan is a different one:

"...the real danger Renzi constitutes for the Government is not that he might abandon it, but that he overshadows it. And it has already happened."

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September 19, 2019

Austria's soft faced far-right

We did not report on the election of Norbert Hofer as the new leader of the far-right FPÖ on Saturday. If anything it sets the party up to becoming once again a possible junior partner for the ÖVP after the elections in two weeks. 

Hofer is a friendly and soft-spoken face. This contrasts with firebrands like Heinz Christian Strache, the former leader, and Herbert Kickl the former interior minister. Despite his softness, however, everyone still expects Hofer to deliver a tough far-right stance. His speech over the weekend under their campaign slogan: "Fair. Social. Loyal to the homeland" just gave a taste of this.

The FPÖ is stable around 20% in the polls. Whether Hofer will make a difference we shall see. The party regained support quickly after the Ibiza affair which brought down Strache and subsequently the coalition government. Party supporters were much more loyal than expected, and the affair has been dismissed by the party as a stitch-up. If anything it may have solidified the support the FPÖ enjoys in the Austrian regions. 

With less than two weeks until the election, polls suggest that as many as a third of voters remain undecided. The ÖVP under Sebastian Kurz is set to come first in the polls, though their support declined over recent weeks. But Kurz will have to find a coalition partner.

An ÖVP coalition with the second-placed social democrats remains unlikely, meaning that the fresh-faced far-right party could, once again, become junior partners. Alternatively, the ÖVP may choose to partner with the Liberals and/or Greens. Kurz himself has praised Hofer and kept the door open for a future partnership under the FPÖ's new leadership.

A rerun of the ÖVP/FPÖ coalition is also what the far right party is promoting in its two campaign videos. The first depicts Kurz and Hofer as a couple seeking a relationship counsellor. The second is a lady dressed in green making a pass on Kurz in a bar, only to be saved by Hofer. The message of the two is to vote for the FPÖ to save the coalition and the ÖVP from drifting to the left.

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