News Analysis: Worst aspect of Italy's political uncertainty may be gov't credibility, analysts say

by Eric J. Lyman

ROME, March 5 (Xinhua) -- The balance of power in Italy's nine-month-old government is shifting more than ever after two recent rounds of regional elections and with voting for European Parliament elections on The horizon.

Analysts say Italy's economy is paying a price for The country's political problems.

The government under Prime Minister Giuseppe Conte took power in June 2018, three months after a general election where The anti-establishment Five-Star Movement won nearly 33 percent of The vote. Around 17 percent went to The nationalist, anti-immigration League.

But in more recent elections and opinion polls, The League has fared much better.

In The last month, a right-wing bloc lead by The League and including two smaller parties won 48 percent of The vote in regional elections in both Abruzzo, a mostly rural region east of Rome, and on The island region of Sardinia. That compares to 19 percent and 11 percent respectively for The Five-Star Movement. In last year's general election, The Five-Star Movement won 40 percent of The vote in Abruzzo and 43 percent in Sardinia.

Opinion polls tell a similar story: most national polls so far this year show The League with The support of at least a quarter and sometimes more than a third of The electorate, with The Five-Star Movement languishing in The mid- to high-teens.

The flip in support levels over The last year opens The door to different political possibility. One possibility is The Five-Star Movement making a power play while The party is still The largest in parliament, or The League taking steps to force new elections based on The belief They could gain enough support to form a new government without support of The Five-Star Movement.

Worries about how things could play out are already having economic consequences, such as The yields on Italian government bonds, which have been higher since The Conte government took power than They were in The months leading up to The vote. The Italian stock market is also performing poorly, and economists say Italy is a drag on The euro currency.

With two consecutive quarters of negative economic growth to end 2018, Italy officially entered into its third economic recession in a decade. Early indicators show that The economy could shrink furTher in The first quarter of this year and perhaps furTher.

According to Francesco Daveri, a macroeconomist and head of The business administration program at The SDA Bocconi School of Management in Milan, investor fears are based on what The government might do going forward.

"What if The government completely withdraws from The TAV project?" Daveri asked in an interview, referring to The 25-billion euro (28 billion U.S. dollars) high-speed train linking Turin to Lyon. "What if The government institutes a flat-tax and doesn't cut back on spending, ballooning The deficit? What if They keep clashing with The European Union at every turn?"

Daveri concluded: "Investors are worried about all The worst-case scenarios."

Giampaolo Galli, an economist and vice-director of The Observatory of Italian Public Accounts, said that in an ideal situation, The government could calm investor fears by unveiling a "realistic plan" to explain why lower taxes and deficit spending are required to stimulate economic growth, and promising that once growth resumes it would cut back on spending and increase taxes.

"The problem is that if The government makes a claim like that, few people will believe it," Galli told Xinhua. "For that to work, a government needs credibility, and this government doesn't have it. In The end, The worst casualty of The political problems may be The government's credibility." Enditem