Numero Zero : The Birth of Italian Populism Union

Numero Zero : What happened in Italy?

This year may be a very peaceful for the financial market. Because there is no political event to shake up the financial market if President Donald Trump is not impeached. But Wolfgang Munchau, european commentator at Financial Times, has some different ideas. He thinks that the union of two Italian populist parties, that can bring about a critical change in the Italian general election will soon be formed. Interestingly, the cause was raised not by EU itself but by U.S. president Donald Trump, who has been over the Atlantic Ocean.

Munchau's Column at FT - Italy’s political threat to the EU and to investors

It is true that Italy, too, has been enjoying an economic recovery. But it has been much weaker than elsewhere in the eurozone. With its high levels of debt and lack of any serious discussion about reforms, there is no reason to be complacent about Italy. That, not a potential Five Star/Lega alliance, is what I worry about. - Article

So who are the protagonists of the birth of union? One of two is 'Northern League (Lega Nord)', the far-right-wing eurosceptic party. And the another one is 'Five Star Movement (Movimento 5 stelle)', also eurosceptic and populism-party led by Beppe Grillo. But the possibility of the Northern League and the Five Star movement unity is still low, as Northern League now belongs to the centre-right coalition led by Silvio Berlusconi (81). So, what magic did Donald Trump do to open the possibility of populism union in Italy?

Latest Poll for Italian General Election 2018

Source : EMG, Centre-Right : Forza Italia, Lega Nord, and Brothers of Italy

Same goal, but different way

We should go back to the Davos Forum a few days ago. Berlusconi strongly criticized Donald Trump's speech about US trade policy and tariff at the Davos Forum, while Matteo Salvini, head of the Northern League, expressed strong support to Donald Trump. But this discrepancy is only a small fraction of the many differences in interest between Berlusconi's Forza Italia and Salvini's Northern League. Even if they actually win the election and form a coalition parliament, they have different views on the various agendas.

Trump tariffs expose splits in Italy’s centre-right alliance (Financial Times)

Silvio Berlusconi, Italy’s 81-year old centre-right leader, was squarely on the side of EU leaders who criticised US trade policy in Davos this week, saying “Trump’s protectionism was not even a positive thing for the United States”.

“I’m with Trump, he’s defending American industry, he wants to save jobs. Everyone attacks him, but I want to do the same in Italy,” Mr Salvini said on television.

This is because current Northern League is completely out of the ideology of Umberto Bossi, is the first constituent of Northern League. Umberto Bossi were launched Northern League in 1981 with the motto of getting "Fiscal independence" in northern Italy. But ambitious Salvini was not satisfied, so he chose the way of the French National Front, which was the epitome of European populism. Salvini had tried to expand Northern League as a national party by raising the 'anti-immigration, anti-EU, and anti-euro' banner.

Silvio Berlusconi	Matteo Salvini

*Europeanism (Weak)*	*Eurosceptism (Strong)*
*Pro-Euro Currency*	*Anti-Euro Currency*
*Anti-Immigration (Weak)*	*Anti-Immigration (Strong)*
*Anti-Protected Trade*	*Pro-Protected Trade*
*Want to be prime minister*	*Want to be prime minister*

This is also reflected in the new campaign logo released by the Northern League in December 2017. Unlike their predecessors' "Lega Nord", the new logo removes the 'Nord', leaving Lega alone. So there are many conflicting points between Salvini and Berlusconi, who is trying to remain in the EU system. Berlusconi convinced that Salvini would abandon anti-EU route, but it is still unclear because Salvini is trying to expand Northern Leagues' influence across Italy by anti-EU stance and anti-immigrants policies.

Tail risk for financial market, but watch out

It is also the question who will take the prime minister if the center-right coalition wins the election. Berlusconi, of course, thinks that he should be the prime minister, but Salvini is against it. This alliance, which has remained unstable with a thin "crack" as predicted by Munchau, may not be broken. But Salvini and Northern League think it will be more helpful for them that make an alliance with Five Star Movement, whose policies more similar to the Northern Leagues' than Forza Italia's.

Of course, it is "Tail Risk", but it is still unclear whether Northern League unites with Five Star Movement and wins again in the general election. At least for global investors it will be a disaster. That is why we must watch the Italian general election.