A possible way to read a status-quo outcome
Latest voting intentions available (13 May, youtrend.it) suggest the ruling PD party led by PM Renzi continues to lead at national levels with 36.3% of preferences, followed by the 5SM, Northern League and Forza Italia parties, which should be able to attract 20.9%, 14.0% and 12.5% respectively.
Electoral results close to what pollsters predicted in mid-May would suggest that voting intentions are little changed since last year’s European elections, when the PD party secured 40.8% and 5SM 21.2%, followed by Forza Italia and Northern League which attracted 16.8% and 6.2% of total votes respectively. If anything, they could be interpreted as a strong result for the ruling PD party given its popularity would have remained at a very high level despite significant and (in some cases) politically costly measures delivered so far by the government. These include labour market and voting system reforms (for more details on those reforms, please refer to: Italy: A preliminary assessment of the labour market reform, 9 April 2015, and Italy: Quantum of political stability, 5 May 2015).
Moreover, an outcome close to that predicted would suggest that the Northern League has become the third most popular political force in the country, overtaking the Forza Italia party led by former Prime Minister Silvio Berlusconi. Consistent with this, anti establishment and euro-critical political forces (5SM and NL) would represent 35% of total voting intentions; however, these two political forces have never mentioned the intention of working together.
If government coalition disappoints, would there be any direct repercussion on reform implementation?
Only to some extent. Whilst in the wake of the approval of the labour market and voting system reforms frictions within the PD party may have gone so far as to be difficult to resolve, the most controversial structural (labour market) and institutional (voting system) reforms have already been approved. For those reforms close to receiving a final Parliamentary reading (Senate reform), there is only limited (if any) room to water down their effectiveness.
But more reforms do need to be implemented. These include a second leg of the labour reform which should focus on, amongst other issues, improving the wage bargaining system (possibly the most important step left to be taken, in our view) to quickly re-align nominal wage growth to productivity. Should the PD score poorly in the upcoming regional and municipal elections, dissidents within the party may decide to take a more radical approach on the remaining reforms, potentially similar to that taken by Podemos in Spain, as some former PD party members seem to have hinted lately. While it may be too early to predict a PD party split, we think that the speed of reform may be slow in the future (in particular concerning the second leg of the labour market and the education system reforms). PM Renzi needs to find alternative support within Parliament, and in particular in the Senate, to keep reform implementation on track and maintain the pace delivered so far.