Five Things to Know About Italy’s Populist Coalition Government

Italy’s populist Five Star Movement (M5S) and far-right Lega have been on the cusp of announcing a deal to lead Italy’s next government for days now; on Friday morning, they released their governing platform to the public. Here, five things to know about this oddest of odd couples.

1. The Five Star Movement moves away from the political fringes

M5S rose to power as an anti-Europe, anti-establishment party launched in the wake of the Eurozone’s economic crisis back in 2009. One of its principal founders was Beppe Grillo, a political satirist in the mold of Jon Stewart. In its early days, M5S courted the young and disenfranchised as it railed against the endemic corruption in Italy’s political class. As it moved from the political fringes and into the mainstream, it dropped many of its more overt anti-Europe policies and rhetoric, but stayed true to its anti-elitist and anti-austerity core.

In 2013, the party made its debut in Italian national elections, storming to a second place finish in parliament. In elections this past March, it captured more seats than any other party (222), but still fell short of the 316 needed for an outright majority. For a party that less than a decade ago was little more than a protest vote, that’s impressive.

2. Lega’s rebranding and upset

But the real surprise of the March elections came from hard-right Lega, formerly known as the Northern League—before a recent rebranding. Lega was running together with former prime minister Silvio Berlusconi’s center-right Forza Italia, and most assumed that Berlusconi’s camp would come out ahead to lead the coalition. Yet Lega pulled off the upset and secured 124 seats in Italy’s lower house to Forza Italia’s 105; the junior member of the coalition, Brothers of Italy, added another 32 seats to the count, making them the combined winners of the election cycle. But the failure to surpass the 316 mark together forced Lega into coalition talks with M5S.

When Lega was still known as Northern League, it was a regional party that derided Southern Italians to an almost comical degree, and even pushed for the more industrial northern territories to secede. The prospect of electoral victory prompted them to become more inclusive, but only toward other Italians; Lega’s pledge to expel 600,000 illegal immigrants resonated with plenty across Italy, as did its general “Italy First” orientation (centered on anti-immigration, anti-austerity, and anti-EU messaging). The party is also largely defined by its pro-working class and small businesses tilt. Somewhat surprisingly, that has put it at odds with the populist M5S.

3. Diverging economic priorities

One of Lega’s main campaign planks was a promise for a flat 15 percent tax across the board, which they argue will provide a much-needed jolt to those small and blue-collar communities it has long championed. M5S has bristled at that campaign pledge, which it sees as a tax break for the rich and politically powerful that it has spent its entire—if relatively short—political life objecting to.

But the critique of economic policy goes both ways; M5S’s flagship campaign pledge was a guaranteed basic income scheme for everyone, which in the eyes of Lega constitutes a handout. This is no trivial matter—one-third of all Italians between 25 and 29 don’t have a job; more than 1 in 10 Italians in the overall workforce are unemployed. Fulfilling that pledge would cost Italy billions of euros that the government simply doesn’t have; so would instituting Lega’s headline 15 percent flat tax. Given that Italy’s government debt is above 130 percent of GDP (second only to Greece among Eurozone countries), neither campaign pitch was ever that realistic.

The latest draft agreement between the two has watered down both proposals (there will be two tax rates of 15 and 20 percent; universal basic income will be set at €780 ($920) for impoverished families), though not enough to avoid jeopardizing Italian public finances if ultimately implemented.

4. Plenty of Common Ground

When it comes to the hot topic of migration, the two sides aren’t that far apart. While Lega has made its anti-immigration stance a central component of its political platform, M5S has largely sidestepped the issue; partly for political reasons, and partly for genuine disagreement within the party ranks. M5S is more anti-establishment/anti-corruption than anything else; as such, it draws support from across the political spectrum. The humanitarian wing of the party would prefer a more lenient approach to those risking their lives to reach Italian shores, but the party’s leadership has been purposely vague on the issue, preferring to leave the migration issue to others. That leaves space for Lega and M5S to compromise on the topic; indeed, the government program released by the two parties this week calls for 500,000 migrants to be deported.

Both Lega and M5S want to roll back the pension and labor reforms introduced by previous Italian governments that attempted to shore up Italian public finances. Both parties also take aim at Brussels, framing European bureaucracy, fiscal rules and the Euro as principle enemies to any Italian economic recovery. And while neither campaigned to hold a Eurozone referendum, a leaked earlier draft of their provisional agreement included a call for the introduction of a Euro currency-exiting mechanism at the EU level similar to what the bloc has with Article 50; that proposal has since been removed. Both parties are also more pro-Russia than many of their European counterparts, another looming flashpoint with Brussels; the latest program agreement calls for the lifting of Russia sanctions by the EU.

Perhaps the most important common ground the two parties share is that neither is particularly eager to head back to the polls and jeopardize their impressive gains, even if recent polls show them either holding steady (M5S) or improving (Lega) since the March results.

5. Obstacles Ahead

Even if M5S and Lega manage to agree to form a government together, plenty of problems still lie ahead. Italy’s economy continues to struggle; any confrontation with Brussels will spook markets and investors at a time when Rome needs to be attracting foreign capital, and lots of it. Italy’s President, Sergio Mattarella, also has significant power to stymie this unusual pairing. Italy’s constitution empowers the country’s president to veto key ministerial appointments—including prime minister and the interior, foreign affairs or finance ministers—that they deem too inexperienced or unorthodox. Mattarella has hinted this week that it’s a power he is prepared to wield.

But perhaps there is no greater obstacle to a successful government than the two parties themselves. Neither party has much executive experience, and while the two may be able to paper over policy differences temporarily, neither group has ever needed to compromise their relatively extreme positions for an extended period. It’s a precarious time in the Italian economy to be trying such political experiments—let’s see how it goes.

This piece has been adapted from Bremmer’s weekly print column.