Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
WASHINGTON, D.C., February 25, 2013 — The results of the Italian general elections are in, but the country's political future is still unclear. NPR reports  that several election surprises—including the success of former comedian Beppe Grillo's populist protest party, the Five Star Movement—seem to suggest Italy is "headed toward political gridlock." Matthew Melchiorre , the Warren Brookes Journalism Fellow at the Competitive Enterprise Institute , responded to the election results with the following statement:
The unexpected success of the Five Star Movement (MS5) has injected a great level of uncertainty into not just the possibility of a forthcoming caretaker government, but also Italian politics in general. The fact that MS5 over-performed polling estimates by roughly 10 percentage points (culminating in approximately 25 percent of the vote for both houses of parliament), foreshadows a dangerous new era of Italian politics in which a sizeable portion of parliament and the electorate rejects sensible reform in favor of reactionary policy rooted in populist anger.
Worse, former technocrat Prime Minister Mario Monti—the only force for real reform in contemporary Italian politics—underperformed substantially at the polls relative to prior estimates. This is very troubling, not only because the movement for liberal reform loses strength with Monti’s poor electoral performance, but also because it indicates that Italians generally reject his agenda of liberal reform and budget consolidation. As I explain recently at OpenMarket.org , this agenda is the only way to restore prosperity in Italy.
Although the centre-left seized a majority in Italy’s lower house of parliament, neither the centre-left nor the centre-right coalition won enough votes—even under a potential coalition with Monti—to control a majority in the upper house. In the next days, Italy’s president will most likely call for new elections to be held in the coming months. He is also likely to negotiate with the parties to install an interim caretaker government. But any new technocrat leadership will not have the same latitude for reform as did the Monti government during 2011-2012, because a newly empowered MS5 is unlikely to give broad support for reform to a technical government installed by means that it perceives to be undemocratic.
In the meantime, Italians should cool their heels and resist the populist urge to give MS5 such strong support a second time. Instead of demanding the “throw them all out” approach of MS5 that includes radical ideas like banning stock options and abandoning the Euro to instead print lire en masse, Italians should demand much-needed reforms to their rigid labor market and cartelized service sector—which keep unemployment and discouraged workers in great supply—and to their broken judicial system, which reinforces labor market inefficiencies and compounds a poor business environment.
European markets, which had expected a comfortable centre-left victory, began pricing in yesterday’s disturbing news before the end of the trading day. Italian stocks fell and bond spreads widened. These trends will only worsen as Italy moves further away from making the reform it badly needs a political possibility.