Italy is heading for a hung parliament with a euroskeptic, right-wing party seeing strong gains

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Italy is headed towards a hung parliament Monday, following an election that saw voters shun mainstream politics and opt for more anti-establishment parties.

As the official vote count continued on Monday morning, after the ballot on Sunday, it showed the Five Star Movement (M5S) would be the largest single party, but a center-right bloc — which features the anti-immigration Lega party — would gain the most seats.

With three-quarters of the vote counted, as of 9:00 a.m. local time, the early results showed that no one party or bloc would have a majority of votes enabling it to govern alone. This signals a potentially long, drawn-out and likely fractious negotiation process in order to form a government.

Government vote data on Monday morning showed the center-right alliance with around 37 percent of the vote and anti-establishment M5S with 32 percent of the vote. The center-left bloc, including the ruling Democratic Party (PD) which took a drubbing in the vote, was seen with 23 percent of the vote.





Euroskeptic Lega sees strong gains

An earlier exit poll indicated that the center-right alliance would gain between 248 to 268 seats in the lower house of parliament, short of the 316 needed for a majority. This center-right bloc is formed of former Prime Minister Silvio Berlusconi’s Forza Italia party and Noi con l’Italia, as well as Lega (formerly Lega Nord) and Fratelli d’Italia.

Crucially, the vote count so far appeared to show the anti-immigration and euroskeptic party Lega, led by Matteo Salvini, with a higher share of the vote than Berlusconi’s Forza Italia. This means the party could push its right-wing agenda at a national level in a future coalition government.

Salvini said the result was “historic” for his party, one which has moved away from its roots of campaigning for an independent northern region to campaign on a national level. He tweeted his thanks to voters.

Silvio Berlusconi, leader of right-wing party Forza Italia, waves as he arrives to vote on March 4, 2018 at a polling station in Milan.

Expected hung parliament

If the final result is a hung parliament then weeks of talks between the parties could lie ahead. The Italian constitution specifies no time limit for parties to reach an agreement or call a fresh election.

M5S has not entered any coalition, although party leader Luigi Di Maio told CNBC in early February that if the party did not gain a majority to govern alone, it was willing to speak to other parties, although he did not say which ones.

Thus, potentially M5S could link up with other parties to form a coalition large enough to gain a majority in the lower house. Likewise, the center-right alliance could also renegotiate with other parties.

Kit Juckes, chief global strategist at Societe Generale, said that the Italian election had “produced slightly more uncertainty than expected” with the center-right’s success being dominated by Lega Nord’s gains.

“Pretty much all pundits rule out an alliance between Five-star and Lega Nord, expecting instead a protracted period of coalition-building led by the center-right,” he said in a research note.

Economists at Unicredit noted that the support for the center-right was relatively high and had increased the chances that this bloc will gain a mandate to form a government.

However, they said that the prominent populist positions of the Lega party might create some difficulties within the coalition. “Evidence of such difficulty will be probably manifested in the high probability that, should the center-right be able to form a government, this will prove fragile,” the Unicredit analysts said in a note Monday.



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Closely-watched in Europe

Sunday’s vote is being closely-watched in Europe to see if populist, anti-establishment parties such as M5S could take a governing position in the Italian parliament. Following an election campaign that featured immigration as a hot topic, the vote was seen as test of strength for far-right parties, such as Fratelli d’Italia and Lega, that have campaigned on an anti-immigration stance.

European politicians will be watching the result with concern as it could prompt the euro zone’s third-largest economy to take a more critical and oppositional stance to the European Union and the single currency. Lega leader Salvini has repeatedly called the euro a “failed experiment” and has criticized Europe.

Leader of Lega party Matteo Salvini votes in the Italian General Election at a polling station on March 4, 2018 in Milan, Italy.

Sunday March 4 had started positively for Europe with Social Democratic Party (SPD) members in Germany voting to approve the party joining a so-called grand coalition with Chancellor Angela Merkel’s conservative bloc, ending political instability there, just as it started in Italy.

Italy’s fragile economy was also a feature in the run-up to the election with somewhat lackluster growth and an unemployment rate of 11.1 percent dominating the debate. On Friday, fourth-quarter gross domestic product (GDP) showed the economy expanded by 0.3 percent from the previous quarter.

The country’s banking system is still mired in non-performing loans amounting to more than 300 billion euros ($368.5 billion). Italy’s debt-to-GDP ratio stood at 133 percent in 2017, according to the International Monetary Fund.

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