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Paolo Pizzoli, senior economist at ING, points out that the official result of inward-oriented European elections went well beyond what exit polls had anticipated as the League won hands down, getting 34.3% of the vote (from 17% in the March 2018 political election) while 5SM scored a dramatic defeat, and overtaken by the PD party, which came in second with 22.8%.

Key Quotes

“After such a strong turnout, the temptation for Matteo Salvini, the leader of the League, to cash in and go for early elections has clearly increased.”

“Is time ticking for the current government alliance? This is a distinct possibility, but not in the very short run, in our view. Indeed, in his first public appearances after the vote Salvini did not seem eager to pull the plug yet. Instead, he said he would not try to enforce a government reshuffle. However, by neatly spelling out a list of priorities that the government should now tackle without delay.”

“Another potential trigger for a crisis might be a revamped conflict with the EU should the ghost of a debt-driven excessive deficit procedure be re-awakened soon. In a press conference, Salvini reminded his audience that Italy is about to receive a letter from the EU Commission asking for clarifications on past increases of the debt/GDP ratio. He added that, after the electoral result, he felt mandated by his fellow citizens to re-discuss old and outdated fiscal parameters with the EU and European partners.”

“A first test of whether the vote has actually changed the dynamics of the government coalition might happen very soon. Should discussions deteriorate, the risk of re-opening an excessive deficit procedure against Italy could increase very quickly.”

“Should the first test be passed, a more formidable one would loom on the horizon: the next budget. As both Salvini and 5SM’s Luigi Di Maio have pre-committed to sterilising some €23 billion of VAT increases, the new budget would start with a heavy funding handicap, leaving little room for new expansionary measures as foreseen by the government programme (or contract, as it is more often referred to).”