 Good afternoon everybody, you're all very welcome to the Institute of International European Affairs for this very timely presentation from Luigi Scazzieri, who I'll introduce just now. Just to remind you that the event this afternoon is on the record, the Q&A there after will be under the Chatham House Rule. Please also extinguish your mobile phones as they say, I put them on the side of my mind and we will just quickly introduce Luigi if I may. So Luigi is a research fellow at the Center for European Reform. He works on European foreign and security policy focusing on policy towards the Middle East, Russia and transatlantic relations. He has conducted research at the Center for European Policy Studies, Johns Hopkins School of Advanced International Studies and the International Institute for Strategic Studies. He holds an MA from the University of Cambridge, an MSc from the London School of Economics and Political Science and an MA from Kings College, London and is the author of several publications for CER and you are active and a frequent media commentator in affairs. So we are very interested in the outcome of the Italian election, what it means for Italy, what the potential scenarios might be in terms of government formation and what the wider implications will be for Europe and with that Luigi I'll hand over to you. Thank you. Thank you very much for your kind introduction. It's a pleasure to be here at the IIEA today. My remarks are structured in two parts. First, I want to talk about what happened in the election and how we can understand that result and secondly, analyze what the implications are for Italy's European policy and for its role in the European Union. So here, just to illustrate what happened, we have a map of the election results with the results in each first past the post constituency. In the election, there was a new electoral system where a third of the seats were distributed by a first past the post and two thirds by a proportional representation. The center left coalition in red got around 23% of the vote. The center right in blue 37%. The center right being made up of Silvio Berrosconi's Forza Italia, the northern, the league and the couple of smaller parties two. And finally 32% for the five star movement in yellow, the five star movement being above all an anti-establishment. And I'd like to make several points about this result. First of all, the center left's result represents really a collapse. It performed poorly across Italy, including in its former electoral heartlands of Emilia Romagna and Tuscany. And there are two key reasons for this poor performance. They are Italy's economy and the migration crisis. So between 2008 and 2013, Italy's economy shrank by around 10%. It has since returned to growth. We've seen growth of around 1.5% in 2017. But the economy remains smaller than its pre-crisis peak. In fact, around 6% smaller. Unemployment is still around 11%. And in the crucial 25 to 34 age bracket, it's 17%. In the south, there's a feeling of hopelessness. And in the north, there's a perception of decline. And the EU is widely blamed for this economic performance in recent years because of its emphasis on fiscal discipline, including the 3% budget deficit limit. Likewise, the Democratic Party's management of the economy is also perceived as ineffective, even though it did actually preside over some growth. And it pushed at the limits of what was possible in terms of easing the fiscal stability, the fiscal limits at the Eurozone level. The second key issue, as I mentioned, was the migration crisis. Italy has seen over 600,000 arrivals over the past four years. Now, this is a mixed flow, comprising both people who are likely to be accepted whose applications as asylum seekers are likely to be accepted and people who are not likely to do so. Again, they use role in the migration crisis as seen as negative. France and Austria on several occasions closed down at the border with Italy. And the EU did try to help in some ways, for instance, by setting up hotspots in South Italy to help process migrants and by setting up a relocation scheme, which was supposed to ease the burden from Italy and Greece. Now, it's important to note that, however, the relocation scheme only covered nationalities that have a 75% or above acceptance rate as asylum seekers at the European level, meaning that they are effectively limited to Syrians and Iraqis. None of these nationalities are particularly represented in those arriving in Italy. As a result, less than 12,000 people relocated out of the 600,000 that have arrived. And the government's handling of the migration crisis is also widely seen by bisexual population as incompetent, even though it was able to reduce flows over the past year from about 180,000 in 2016 to 120,000 in 2017. Thanks to a set of highly controversial deals with Libya, both with the UN-recognised Libyan government in Tripoli and with a series of Libyan militias and tribes in Libya's south, the problem is that these achievements simply didn't filter through into the public debate. It was a matter of too little and too late. There were, of course, other factors in the poor performance of the of the centre-left, one of them being the divisive nature of Renzi's leadership. He essentially led to splits within the party, as a result of which a splinter party ran in the election taking some votes from the centre-left coalition. And secondly, the electoral system, which was new, as I mentioned, facilitated coalitions and now this allowed the centre-right to stick together despite its its wide internal differences. The second observation that I want to make is that the centre-right's performance was actually rather strong. It took over most of the north, including some of the left's traditional strongholds. There are several reasons for this. First of all, the League within the centre-right performed more strongly than Forza Italia. The League was able to secure around 18% of the vote compared to less than 15% for the Liscone's party. And of course this reflects some changes that the League has undergone in recent years. It used to be called the Northern League and to advocate Northern succession from Italy. But it's now dropped Northern from its symbol and become a nationalist party, making immigration, economic nationalism and opposition to EU overreach as its key issues. And its slogan in the election was Italy first. Of course this allowed it to win the support of many disaffected voters. But it's also simplistic to paint the League in quite the same vein as a party like the Front National. The League has been a party of government in Italy. It was in the Liscone's governments in the 90s and 2000s. And it also governed some of Italy's richest regions such as Lombardy and Veneto. So this means that it's able to pick up both disaffected voters and more mainstream ones, especially in the north where it has essentially replaced Forza Italia as a conservative party. At the same time however the presence of Forza Italia in the coalition allowed the centre-right to win seats, to win a share of votes in the south of the country. This isn't quite reflected in the map, which of course only represents the first past the post-consituencies, but actually they had above 20% of the vote throughout the south. Now the centre-right was able to perform so well because it was able to capitalise on the two issues that are most key to Italians. Namely it ran on a platform of tax cuts, increased social spending and the abolition of a controversial 2011 pension reform and of toughness towards immigration. Finally it also benefited from a broader disillusionment of Italians with the European Union. The number of Italians saying that membership of the EU is good for Italy and that it has benefited Italy according to a survey done by the European Parliament now stands at 39%, which is actually the lowest number in the whole EU and that includes the UK. And only a third say that Italy's voice counts in the European Union. So essentially I would argue there's a widespread feeling that the way the EU is being run, especially in relation to eurozone governance and to the migration crisis, is not beneficial to Italy. The third remarkable element about the selection was the very strong performance of the five-star movement. As you can see it was able to take virtually every single first past the post-consituency in the south of Italy and in the islands. Of course this doesn't mean that its vote share in other areas of the country was negligible, indeed it was around 30% in other areas too. I've got a slide here with who the five-stars voters are based on sampling done after the election and I just want to say a couple of things really. First of all it is true that the five-star is the largest party amongst the unemployed, but it's not quite correct to portray it as the party of the unemployed. So its vote share is not too different amongst professionals and the unemployed and indeed it's another remarkable element is that the democratic party is only the largest party amongst retired. And likewise a similar point here by education, its five-star is not only the party of those with a lower level of education but indeed it scores around 30% amongst the university educators, amongst those with a second year education too. So it's the single largest Italian party in pretty much every demographic. The strong performance is in part due to the same factors that propel the centre right, it's not in government, it was sharply critical of the democratic party's record on migration and it proposed a series of tax cuts and handouts and increase in unemployment benefits which of course were vote winners. Perhaps most of all however the five-star benefited from still being able to present itself as not one of the established parties. Despite the fact that it has ruled cities like Rome and Turin for a few years now with a rather patchy record it's still able to present as a party that has a strong focus on anti-corruption and on transparency. It's important to note that the five-star has moderated its anti-European stance. The party used to be rather anti-EU in past years and to call for Italy's exit from the Eurozone. During the campaign this stance altered it now no longer calls for exit from the European Union. Party leader Luigi DiMaggio defined the party as pro-European. He stated he would abide by the 3% budget deficit limit rule. Last year as we know the five-star tried to join unsuccessfully the liberal group in the European Parliament. They have expressed support for things such as transactional lists at the European level and indeed their voting record in the EP is mostly with the United European Left Group. So in essence this is a soft Eurosceptic party. Perhaps one which is not Europhile but one which I don't think would be fair to simply put in the Eurosceptic box. It's not against the EU per se but rather against the way it is currently being run. This brings us to the current situation in Parliament that there is no straightforward majority in Green, the League in blue, the Forza Italia in yellow, the five-star in red, the centre left. So first there's a couple of procedural steps before we get to the coalition building which characterises Italian politics namely that the parliament has to elect the President of the Chamber of Deputies and of the Senate and this election will reveal whether there are cross-cutting convergences between different parties and will be a testing bed for coalition talks after. Following these steps which will take place near the end of this month President of the Republic Matarella will start consultations with parliamentary groups and will give a mandate to form a government to the leader of the League, Mattel Salvini probably or to Luigi DiMario or potentially to another figure. In terms of what arrangements are possible well it's clear that the moderate coalition as many hopeful before the vote of Forza Italia and the Democratic Party simply doesn't have the numbers. It's possible that the right-wing coalition may be able to poach a few MPs from other parties in the course of the coming months. It's also possible that the five-star and the northern League will form an alliance as is an alliance between the five-star and the centre left and if all these options fail the Italy's president could try to form a government of national unity made up of non-politicians with support from across the political spectrum which would aim to ferry the country to new elections essentially and I'd now like to focus on which of these each of these options would mean for Italy and for the European Union. So if we have a presidential government of national unity or a centrist government after new elections though the latter looks rather unlikely Italy would more or less continue on its current path. Such a government would try to stimulate the economy it would continue its gradual reform efforts possibly implement a series of tax cuts and increase in benefits for low earners and ask the EU more flexibility especially on spending relating to investment although of course it's unclear how much leeway it could obtain. It would be supportive of swiftly completing a banking union and more in general of Franco-German ideas to reform the eurozone although again it might not be trusted as the combination of Forza Italia the combination in general could be perceived as unnatural but I think in general the possibility of an ambitious eurozone reform should not be overplayed at this stage there's a lot of difference between the French and the German positions and the Italian position is different yet and yes the other the other day we saw Mark Critter come out with a series of of objections or what seemed like throwing cold water upon Franco-German plans essentially with a focus on budget discipline and the national dimension of reform. A centrist government would also ask the EU for more solidarity on migration and push for a reform of the of the Dublin regulation in the sense that the country of arrival should no longer be considered the country where applications have to be processed which could also push for a reiteration and expansion of the relocation mechanism in the sense that it should cover a wider range of nationalities than it did. It could be more supportive of other items on the European agenda such as more conditionality in the use of structural funds and further integration in European defence through permanent structured cooperation and in foreign policy it would continue to push for increasing new engagement in the Mediterranean and although the presence of Forza Italia and other slightly more pro-Russian parties could of course mean that it really takes a soft distance towards Russia. So such a government and I think if it's a presidential government would be essentially a bystander in Europe because it wouldn't have the political mandate to participate fully in either in many new initiatives. On the other hand a centrist coalition could be an important player but as I said this prospect seems remote which brings me to the prospect of right-wing government. Now the right-wing government would probably be led by a figure from within the Northern League although this wouldn't necessarily be Mattel Salvini if there is a need for broader convergences with other parties someone else from the League perhaps a more moderate figure could step up. Now it's clear that such a government would adopt a more strident tone towards the European Union. It could be a spoiler but I think it's more likely that it would be more of a drag. It wouldn't try to leave the EU or the Europe of course and its priorities would be boosting the economy and tackling migration. So in terms of boosting the economy some of its promises included a flat tax the abolition of the controversial pension reform and an increase in social spending. Now to do this it of course could be tempted to flout the EU's three percent rule. Now we know what would happen in that case and essentially international debt markets would lose confidence in Italy's ability to finance its debt interest rates would rise and the government would presumably have to step back from many of these plans. So in essence I would argue there's a sort of self-regulating mechanism at play which doesn't necessarily kick in immediately it's still possible to cause damage but eventually it does prevent too much fiscal or irresponsibly irresponsible fiscal loosening. Arriving government would probably oppose many of the proposed reforms to the Eurozone partly because it would see them as interfering in national economic governance but also such a government would not be perceived as a partner by the European Union it simply wouldn't be trusted with the moderate elements namely for Italy are simply not having enough weight. On migration it would be more forceful in calling for EU solidarity and for a reform of Dublin although I'm not sure with what effect what it would do is take more unilateral action we would expect to see more deals with countries of origin and transit and in general an emphasis on increasing readmission rates. In terms of foreign policy I think such a government would could be quite disruptive it would have it would push for a more Russia friendly foreign policy so both the League and the Forza Italia especially the League are very friendly towards Russia with this means in practice I think is that any action to toughen sanctions or to impose new sanctions on Russia would be would be off the table it's far less likely that it would attempt to roll back existing sanctions however simply because this would be so costly in terms of political capital and it would rather use this political capital in achieving in securing further fiscal leeway. Arriving government would also have implications for other issues on the European agenda I think plans for conditionality using structural funds would be off the table integration and defence would also be harder again because of the focus on national sovereignty even though again I think it's important not to overemphasize how the plans currently on the table and I think it's important not to overemphasize their transformational potential these are small steps and finally there's a possibility of a government with with participation of the five-star movement now as I mentioned an option is a government with the league and the five-star and I'm not too convinced that they can work together this time round simply because it's unclear to me why the league would agree to play a subordinate role to the five-star movement when leadership of the centre right as a whole seems within reach their priorities again would be securing more more fiscal leeway boosting the economy and reducing migration again I think many of these promises would be unlikely to materialize but still it's clear that such a government would be perceived as most disruptive by its European partners and by international markets eurozone reform would be very difficult both because of the completely incompatible views and because of the limited international credibility of such a government in terms of foreign policy we'd expect to see a similar impact to that of the right wing government and the league and the five-star are both friendly towards Russia that there would be a slight twist in the sense of the five-star movement has a very strong pacifist streak so I think a possibility would be that Italy cuts back its contributions to some of the international NATO or peacekeeping missions such as its contribution to improving security in Afghanistan but it's interesting to note that actually the five-star and the league have a rather different positions on a set of international issues so for instance the league on the Middle East peace process usually takes a provisional stance whereas the five-star takes a pro-Palestine stance and again initiatives to boost European defence cooperation would be off the table but I do think a likelier option than the government led by the five-star and the league would be either a five-star government on its own perhaps in the near future or a coalition between the five-star and the democratic party and of course depending on whether the democratic party is included in a coalition with the five-star this could mean that such a government could play a more constructive role at the European level now this could mean some progress on banking union more limited friction in foreign policy perhaps some support for conditionality in the use of structural funds so if the democratic party is included there is a possibility that such a government would not be too different from a status quo government but of course the key issue is that so many of the five-stars position or many key issues remain unknown they have been in government but only at the local level and simply haven't had to flesh out positions on a range of international issues and have limited themselves to saying fairly to putting forward fairly uncontroversial policy proposals really so in essence what I want to convey is that any Italian government that emerges will have two priorities securing really trying to boost growth meaning that people would then feel more positive about their future and trying to better control migration a right-wing government would have the potential to be a spoiler although as I said it would be more likely to be a drag one with the five-star movement would have the potential especially if the democratic party is included to be more constructive and of course a coalition between the five-star and the lead would be rather disruptive but I'd like to emphasize here that Italy is a parliamentary democracy where actually the government of the day has a relatively limited power of course this makes transformational reform and for instance economic structural reform much harder but it also means that in times of difficulty any policy shifts tend to be constrained and they will also be constrained by Italy's embeddedness in the European Union and in NATO so on the whole I would say the lightest scenario would be that Italy will be an impediment will add to the series of difficulties in many of the issues on the European agenda but it won't be it will not be a spoiler at least actively the real challenges I think lie in the medium term Italy's economy remains fragile and even according to the government's rather optimistic predictions public debt in 2020 will remain above 130 percent with unemployment still around 10 percent population is aging and Italy is becoming a much less enthusiastic member of the European Union any government may be able to provide the economy with some oxygen but it will be unable it won't have the political capital to implement the serious structural reform that that Italy needs so two factors really are going to shape Italian politics in the coming years the first is the stance of the five-star movement there's a key question over whether the five-star movement will further moderate itself and become a somewhat critical and soft you're a skeptic party of government or whether it will veer back towards some of its former positions and become much more virulent you're a skeptic and a key test in this regard will be where they stand in the European elections of 2019 in which as part of which political family will they stand and the second key variable in determining the course of Italian politics is EU policy I'm quite skeptical about the prospect of a major euro the eurozone reform at this stage but there is a possibility that of course the EU will allow a degree of fiscal loosening even though reform of the eurozone is minimal which would allow people to again feel as if Italy's economy is truly recovering and the second key variable is whether the EU does more to help Italy on migration now if it does neither of these things then I think Italians are going to become more and more disillusioned with the European Union in coming years and if there's another major economic shock at any stage in the future years then Italian politics will veer almost inevitably I think towards your skepticism and at that stage I think something that currently seems so remote such as Italy leaving the eurozone or even the EU could start to become more of a possibility thank you