Italian Election Focus: What could the Vote do to Euro Exchange Rates?

Italy is just a month away from deciding on its next government. The key election will also be seen by many as a barometer for the country’s stance on the EU.

In this article we outline some of the main players and look at what sort of impact they could have on the Euro.

So who are the Main Players?

Italian politics is famous for its colourful characters and this year’s line-up is unlikely to disappoint.

Here’s our guide to the names to look out for next month, some of whom you may already know…

Matteo Renzi

Renzi is the current leader of the Democratic Party and served as Prime Minister between 2014 and 2016, having resigned when his political reforms were rejected by voters.

While the Democratic Party still enjoys considerable support, the same can not be said of Renzi. His failure to deliver on the promise of an economic turnaround, as well as policies which are blamed for the surge in migrants, have made him a divisive figure.

Renzi will need to elicit support from the Democratic Party’s left-wing allies if he is to see off a threat from the right; something that may be a hard sell as many on the left accuse him of being too much of a centrist.

Silvio Berlusconi

As the leader of Forza Italia (‘Forward Italy’), Silvio Berlusconi heads the conservative coalition, without actually being able to run for office on account of a conviction for tax fraud.

Instead, he is likely to be kingmaker in the upcoming election, with his support likely to be key in deciding who will hold office if his centre-right coalition claims victory.

Georgia Meloni and Matteo Salvini

These two are the likely contenders for the position of Prime Minister in the event that the conservative coalition manages to gain power next month.

Meloni is seen as something of a protégée of Berlusconi, having served as minister for youth policy under Berlusconi from 2008-11.

However, she split away to form her own party in 2012, the right-wing Fratelli d’Italia (Brothers of Italy).

While the party remains small, its place within the conservative alliance and Meloni’s position as the most prominent female candidate in the race means that she enjoys significant attention, allowing her to hold her own on the political stage.

Meanwhile, Salvani is the leader of the far-right, anti-EU Lega Nord (Northern League) a party which was originally founded on the hope of breaking industrial northern Italy away from the poorer south.

Salvani has sought to modernise the party since becoming leader, distancing it from its past by renaming it as simply ‘the League’ and changing its main focus from breaking away from the south.

With the League commanding the largest share of the vote within the conservative coalition after Forza Italia, Salvani is a strong contender for Prime Minister should the right claim victory this year.

Luigi Di Maio

Di Maio, the recently-elected leader of the populist Movimento 5 Stelle (Five Star Movement), is the freshest face in this year’s election, and at just 31 he would make the youngest Prime Minister in Italian history.

However, those looking to write off the young upstart may want to look at his party’s polling numbers. Under DI Maio’s guidance, and his decision to soften its opposition to Europe, the fiercely anti- globalist and strongly environmental Five Star Movement currently enjoys being the most popular party in the running.

The real question hanging over DI Maio and the Five Start Movement, however, is whether the party is willing to work with others in order to gain power – something that flies in the face of one of the party’s key tenets.

Paolo Gentiloni

Gentiloni is the current Prime Minister and a member of the Democratic Party, having been thrust into the position at the end of 2016 following the resignation of Renzi.

Despite having a higher approval rating than any of the other candidates running in the 2018 election, Gentiloni has ruled out another term in office.

However, Gentiloni could find himself in the position a little longer if no workable government can be formed after next month’s election.

What is each Party Promising?

With parties across the political spectrum vying for power, there is something for everyone in this year’s election.

Given the low turnout in the previous election, it’s important for parties to stand out from the pack if they want to win over voters – something that has led to some pretty ambitious promises.

Democratic Party

Despite the Election being only a month away, the Democratic Party remains tight-lipped about its plans for the next term in office, possibly to avoid promising too much and delivering too little, as it did at the previous election.

Renzi has, however, dropped a few hints as to what he hopes to achieve should he be elected, such as raising the minimum wage and scrapping TV licence fees.

Ultimately, it looks like the Democratic Party will focus on achieving some of the same goals it set out in the 2014 election.

Forza Italia

One of the ‘fundamental points’ of Forza Italia’s policy programme is the party’s promise of a flat 23% rate of income tax, which Berlusconi believes will help to foster economic growth.

In the same vein, the party is seeking to scrap a number of other taxes on cars, houses, businesses and inheritance.

In terms of Italy’s relationship with the EU, Berlusconi wants to reduce Brussels’ hold on the country by ensuring that the Italian constitution trumps EU legislation.

However it’s Berlusconi’s abrupt U-turn on the Euro that is one of the most surprising of the party’s policy promises, with calls for Italy to retain the single currency.

Northern League

A flat tax rate is also one of the Northern League’s main policy objectives. Salvini would like to see income taxes as low as 15%, with the losses in revenue being offset by a corresponding reduction in tax evasion, he says.

The League would also like to see the re-opening of Italy’s brothels, with legislation introduced to tax them. Recent data shows that taxing currently illegal activities, including prostitution, would considerably boost Italy’s GDP numbers.

In contrast to Berlusconi’s recent 180 on the issue of the Euro, the League wants the return of the Lira, promising to prepare to ditch the single currency ‘one second after’ they’re elected.

Brothers of Italy

While Brothers of Italy’s policy plans are broadly similar to its conservative peers, such as lowering taxes and reclaiming powers from Brussels, the party’s focus on the birth rate sets it apart.

Italy has the world’s second-fastest ageing population, placing considerable pressure on the country’s economy, with over 30% of the population having reached retirement age.

To help combat this Meloni, who ran to be the Mayor of Rome while seven-months pregnant, wants to bolster the birth rate by offering incentives to become parents.

Five Star Movement

The Five Star Movement has a bold plan to repeal up to 400 so-called ‘useless’ laws within its first year in office. This, it claims, will create a much fairer and less complex tax system and cut down on government bureaucracy and red tape.

The party would also like to scrap the previous government’s compulsory 12 vaccinations for children. Currently parents face fines if their child is not vaccinated before starting school. Di Maio would like to see this eliminated and reduce the total number of vaccinations to four.

While the Five Start Movement was once highly critical of the EU, it has softened since the rise of Di Maio. The new leader is no longer pushing to leave the Euro, although he has hinted a referendum on the currency could still be held as a ‘last resort’.

What Impact Could the Outcome have on the Euro?

First of all, it’s important to point out that some form of coalition is the most likely outcome of March’s election as the fractured political landscape makes it very unlikely that any single party will be able to form a government by itself.

As it stands, the most likely outcome is a victory for Berlusconi’s conservative alliance, with his bloc claiming the largest portion of the vote, according to the latest polls.

The impact this will have on the Euro will largely depend on which of his allies a victorious Berlusconi nominates for the top position.

If he picks Salvini, this would likely have the greatest negative impact on the Euro as his vocal opposition to the single currency would stoke fears of Italy returning to the Lira.

A more moderate candidate, such as Meloni, would likely be a little more palatable to EUR investors, although this could still weigh on the currency.

While a victory for the Five Start Movement looks unlikely given its reluctance to work with anyone else, a surprise win for them could nevertheless prompt considerable Euro volatility despite the party having softened its anti-EU rhetoric.

Any volatility would be largely due to the party being an untested entity, with a great deal of uncertainty hanging over its economic policies.

The most supportive outcome for the Euro would likely be a victory for the Democratic Party; it being the most Euro-friendly party as well as representing the status quo, which is generally favoured by investors.

 

If you’re considering making a Euro transfer in the near future, you may want to talk things through with an industry expert and find out about your currency transfer options.

 

Category Economy

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