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Last Sunday, as most Europeans were off for the Christmas holidays and making last-minute social plans for the New Year’s Eve celebrations, Italy’s President Sergio Mattarella was attending to the functions of his largely ceremonial post.

One of the few constitutional powers afforded to his office is the power to pick a prime minister and dissolve parliament. That latter power he had exercised three days beforehand, paving the way for a general election on March 4. And on New Year’s Eve, Mattarella used the opportunity of his last official function of 2017, a 10-minute televised address to the nation, to urge Italy’s political parties to make realistic proposals to tackle its problems.

Although the Italian economy is humming along at its best level since 2010, unemployment remains at a stubborn rate of 11 per cent — or about 35 per cent for those aged between 18 and 24. Italy too has the second-highest public debt to gross domestic product (GDP) ratio after Greece in the 19 nations that use the euro as their common currency. Under former prime minister Silvio Berlusconi, Italy was at the heart of the Eurozone crisis in 2011 and it is the single-most cause for concern among economists and currency regulators, who are keeping a very close eye on nation and its political leadership in the run-up to the election three months from now.

No sooner had Mattarella dissolved parliament than the few money and bond traders still at work over the holiday period in Frankfurt, Amsterdam and Paris raised the yield on Italian 10-year bonds to their highest level since 2011 compared with those of similar length for German notes. Simply put, the traders believe Italy is now a fiscal mess and a bad risk. And the policies of Italy’s political parties are doing little to dissuade or deter that line of thinking.

The ruling Democratic Party (PD) is trying to buy its way back to power by promising up to €50 billion (Dh221.5 billion) in tax cuts across the board for all Italians. And even Berlusconi hasn’t been chastened by his near-debt experience in 2011. His centre-right Forza Italia (Go Italy!) wants the best of both worlds, offering voters a chance to bring back the Italian lira for domestic use while retaining the euro for its dealings with the rest of the European Union (EU). It’s a bureaucratic and economic arrangement that would bring a smile to the face of Benito Mussolini. Berlusconi is also proposing a low, single flat rate of income tax.

If that’s not confusing enough for voters in Italy and those increasingly worried bond holders in Frankfurt, Paris and Amsterdam, then consider that the anti-establishment 5-Star Movement is proposing to hold a referendum on Italy’s continued use of the common currency if Brussels doesn’t relax and renegotiate the strict fiscal rules surrounding the euro.

The likelihood of looser rules is negligible given that German Chancellor Angela Merkel is a strict fiscal disciplinarian and both she and French President Emmanuel Macron would like to see stronger controls over a reinvigorated euro and EU, particularly with the United Kingdom with one foot out of the door.

As it stands now, no one party is anywhere near close enough to being able to form a government on its own. The 5-Star Movement is leading opinion polls with support around the 27 per cent mark, followed by the outgoing PD at 24 per cent. The opinion polls suggest that if a vote were to be held today, Berlusconi’s Forza Italia would secure around 16 per cent of support. Its right-wing Northern League partners garner some 14 per cent support while the Brothers of Italy are at 5 per cent.

From where Mattarella sits in the Quirinale Presidential Palace in Rome now, it’s anyone’s guess who he’ll be asking to form and lead an inevitable coalition government come the week of March 5. It’s no wonder those bond dealers in Frankfurt are fidgety right now — and even more so in three months’ time.

But it’s not just Italy’s national politics that’s complicating the economics. Add in new regional tensions, and those bond traders will be raising the yield on Italy’s 10-year bonds even more. In late October, two of Italy’s wealthiest northern regions voted overwhelmingly in favour of greater autonomy from the rest of the nation — part of a powerful political centrifuge that’s at play across Europe, from Northern Ireland to northwest France, the Baltics and the Basque country, from Corsica to Catalonia.

Regions want more say over their own affairs.

In the Veneto region that includes Venice, and in Lombardy, the region surrounding the industrial powerhouse of Milan, voters have made it clear that they want a greater degree of control over regional policies and politics, and how the tax revenues they pay into the coffers in Rome are spent. It’s not an independence movement, just a move towards greater independence in the form of regional autonomy.

While turnouts in the non-binding referendums was just above and below the 50 per cent mark, respectively, in Venato and Lombardy, 95 per cent of voters who did cast votes opted for greater autonomy.

The votes mean that these regions, that together contribute about 30 per cent of Italy’s economic output, will be seeking greater control over every euro that goes to Rome. And that is money that is vital in keeping those bond traders back in Frankfurt, Paris and Amsterdam comfortable in Italy’s economic performance and confident in its ability to service its high debt-to-GDP ratio. Lombardy sent €54 billion more in taxes in 2016 to Rome than it received back. In Veneto, €15.5 billion more went to Rome than was received. Together, the two regions want to halve that deficit by gaining more control over 23 different areas of spending.

The two regions are also asking for greater control over immigration and want a say on security matters. Those increased regional powers would require a change to the Italian constitution, and the last time an Italian prime minister tried to amend that document two years’ ago, Matteo Renzi was handed a proper political shellacking. He had a very quick visit to Mattarella in the Quirinale and is still licking his wounds and writing his memoirs.