July 19, 2019
The election of Ursula von der Leyen is currently contributing to a potential government crises in both Germany and Italy. We have a separate story below on how patience with the German grand coalition is running thin on both sides. In Italy the situation is more direct and more urgent. There is a possibility that the government could fall this week.
It was a day of high drama in Italy. In the next 48 hours there will have to be a decision of whether or not the Italian coalition will come to a premature end. This is deadline set by President Sergio Mattarella if the two parties were to opt for an early election in September. It is hard deadline. If you can’t have elections by September, the next feasible date is February or March. Italy needs to pass the 2020 budget in October. Unlike Spain, for example, Italy cannot simply roll over last year’s budget. That action would trigger an automatic rise in VAT, which would throw the economy into an immediate recession.
We know that Italian news media like to dramatise politics. Today’s Corriere della Sera devotes its first twelve pages to this story. The paper offers a minute-by-minute account of how the two leaders spent their day yesterday, with events becoming progressively more dramatic. Salvini, who was in Helsinki, was overheard being told on the phone that he has to pull the plug on the coalition right now.
So why is this happening now? One issue for the coalition is Five Star's support for Ursula von der Leyen. This has isolated the Lega more. Another question is the nomination of Italy’s Commissioner after Giancarlo Giorgetti, the Lega politician who is effectively running the country as the senior minister in Palazzo Chigi, said no.
Another problem is government resistance to Salvini’s tax-cut proposals, some elements of which he fleshed out last week. What goes in Italy under the misnomer of a flat tax is a reduction in the number of tax bands, with the aggregate effect that it would lead to substantial income-tax cuts in the aggregate.
Another problem is that Five Star acts like the senior partner in the coalition, and it has more MPs and Senators. But the electoral fortunes of the two parties - as expressed in the euro elections and more so in national polls - have reversed since the general election. Polls show Salvini’s support at close to 40% - the threshold needed for an absolutely majority of the seats in the Italian parliament, similarly to Greece.
And finally, what also adds to the pressure is the awkwardly-timed drip-feed investigation into the Lega's links to Russia. We think this is ultimately not an electoral bullet, but may raise legal issue whose impact is not yet clear.
We also have stories on tensions in the German grand coalition; on the politics behind the Commission’s probe into Amazon; on Russia’s sudden interest in Instex; on pension reform in France; and on Johnson’s two Brexit options.