Italy's New Government
Video Transcript:
Video Transcript:
Nine weeks after the inconclusive general elections in February, a new government was sworn in in Italy on Sunday. The new government will be led by deputy secretary of the Democratic Party Enrico Letta and includes a combination of politicians and technocrats. This will bring some short-term stability to the eurozone's third-largest economy, but long-term uncertainty will remain.
The new government is the product of an agreement between Italy's two mainstream parties, the center-left Democratic Party and the center-right People of Freedom party, led by Silvio Berlusconi. It also has the backing of outgoing Prime Minister Mario Monti's centrist party, and includes some bureaucrats, such as former president of the Italian Central Bank Fabrizio Saccomanni.
To a large extent, these are the same political forces that supported Monti's technocratic government, who took over in November 2011. This government is a reminder of how fragile the political situation is in Italy, as this is the second time in a year and a half that a grand coalition has to be formed in the country, as none of the traditional parties was able to form a government on its own. The new government is also a confirmation of the desire of these parties to remain in power and avoid the call for early elections for as long as possible, as the rejection of mainstream political parties is very strong in the country.
However, the new government will be fragile from the beginning. First, it is the result of an agreement of parties with very different economic and political agendas. The reform of the electoral law and the struggle to reduce taxes without weakening the country's fiscal situation will cause constant tensions within the parliament. Second, the new government will have to deal with a declining economic situation, as the Italian economy is in a deep recession that is expected to continue this year. Third, Italians are increasingly distrustful of mainstream parties. In the February elections, the anti-establishment Five Star Movement got over 8 million votes, making it the third-largest force in the parliament.
Finally, the social aspect of the crisis opens the door for potential episodes of violence. On Sunday, a man shot two military police officers and a passer-by in downtown Rome. The shooter was an unemployed man who was allegedly trying to protest against Italy's political class. While this incident was isolated and the man acted alone, it's a reminder of the potential violence that could take place in the context of a deepening economic crisis.
From a financial point of view, the situation in Italy has calmed down in recent months, as the promise of intervention in the sovereign markets made by the European Central Bank in September has allowed Italy to borrow at tolerable costs. However, the economic situation keeps deteriorating in the country, and the traditional political parties are struggling to remain in control. This new government will allow Italy to gain some stability in the short term, but its long-term challenges remain.
