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Regional elections in Italy threaten to unravel "Rome's fragile coalition"

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Italians have an appointment with the polls this Sunday, September 20, and Monday, September 21, with the holding of elections in seven regions. The center-right parties appear compact at this appointment, while the two parties currently in government, the 5 Star Movement (M5S) and the Democratic Party (PD), have failed to agree with the candidates, which could take their toll.

Of the regions where votes are taken, four are in the hands of the center-left (Tuscany, The Marches, Campania and Apulia), while two (Veneto and Liguria) are center-right.

It is also voted in the Aosta Valley, because the governing board was dissolved due to its relations with the mafia. The Aosta Valley is a autonomous region with a different party system.

"The real test for Prime Minister Giuseppe Conte's national collation, which has been in power for a year, will arrive with these seven regional elections, "Berenberg's experts point out, while warning that" if the fragile collation of Rome collapses (due to these elections), the markets could worry facing the possibility of an early election in Italy, which can lead Eurosceptic parties to victory, such as the Northern League. "

Since the general elections of March 2018, the main opposition parties – the right-wing Northern League; the Fratelli d'Italia (FdI), from the extreme right; and the center-right of Forza Italia (FI) – seized power from the Democratic Party in eight of the nine regional elections. Voters have moved away en masse from the 5 Star Movement. "PD and M5S have presented a joint candidate only in one region, while the parties of the right have supported each other," these analysts emphasize.

WHAT IS EXPECTED

According the surveys, the right will probably keep Veneto and Liguria and will win Marche comfortably, while the PD can count only on Campania.

"Among the most contested regions, Tuscany is the most prized target. The left has ruled the rich province for the past 50 years, but the League has narrowed the gap with the PD in polls"Berenberg explains. In Apulia, the head of the Democratic Party has recently regained some ground.

"Lose Tuscany, and to a lesser extent Apulia, could lead the left into confusion. Conversely, a draw, with three wins for the right and left, respectively, could help stabilize the national coalition ", they point.

Regarding some details that should be taken into account, it should be noted that Liguria is the region where the PD and M5S present a joint candidacy. "A (probable) failure like the one in Umbria last year would make it more difficult to reach new alliances between the two", warns Berenberg. In addition, these analysts warn that the FdI has risen from 10.5% to 15% in the 2020 polls, while the League has fallen from 32% to 26%." If the League does not achieve the vitoria in Tuscany, Matteo Salvini could be under pressure, "anticipates Berenberg.

"CONSIDERABLE" RISKS

All in all, the German firm maintains that short-term political risks in Italy "They are considerable", although it assumes that "they always are".

"The risks currently do not seem higher than usual. The discrepancies between the PD and the M5S are constant, but we expect them to stay together for two reasons. First, by the prospect of a victory for the right in a possible snap election. And, second, for the 100,000 million that the country will receive from European Recovery Fund. The two parties want to distribute the money instead of leave that pleasure to the right"They acknowledge from the signature.

Economically, these experts consider that, given Italy's weak fundamentals, not likely to return to pre-pandemic GDP levels until 2023 instead of 2022 like most other European countries.

"If Europe uses the newly issued funds to exert slight pressure on Italy, it can help push for more ambitious structural reforms in the country and chart a path to higher growth. It is an opportunity, but the outcome is unclear. A coalition in Rome with renewed political capital -to develop bold plans, and with some longevity to start implementing them- it would increase the chance that the opportunity would be used wisely"Berenberg concludes.

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