(Ansa)

Potential outcomes
What are the potential outcomes of this round of consultations?
1. 1. Temporary government: We see this as the most likely outcome. President Napolitano could decide to give either Pier Luigi Bersani (most likely) or a non-partisan person (less likely) the mandate to form a new government, which necessarily would need fairly bi-partisan support. This is likely to be a temporary majority which aims to guarantee: a) the approval of a new electoral law, in order to overcome the evident limitations of the current system; b) some reforms of the institutions, such as a reduction of the costs of politics, including probably a reduction of the number of members of parliament, and c) a short list of economic measures, including, for example, the sale of state assets to reduce the public debt - we recall that the Italian government has to present the updated fiscal and economic projections and the National Program of the Reform in mid-April. In this case, it is very difficult to predict the stance of the M5S and its availability to be part of a grand coalition, including its incentive to work together on changing the electoral law. Also, the main political parties have been in talks for most of the past year to reach an agreement on a new electoral law, without success. Still, it is likely that the latest developments may change the attitude of the main political parties.

2. 2. Immediate new election: The new President of the Republic may decide that the conditions for a new government are not in place. He dissolves parliament and calls new elections, which would take place only after a period of between 45-70 days to allow time for another election campaign.

3. 3. Wider coalition: During the consultation period, a wider coalition led by the center-left, possibly including the M5S and the center coalition, may end-up being able to form a new government. In this case, Bersani is the most likely candidate to lead this coalition. However, at this stage, it is premature to anticipate how members of the M5S will behave once in parliament – many of the candidates lack political experience. Beppe Grillo himself will not seek office and until now he and his movement have shown no willingness to cooperate with the existing parties. Still, in Sicily "selected" cooperation, without an official alliance, between the M5S and the center coalition is already in the cards and Mr. Bersani opened up to M5S over the last few days of the electoral campaign.

The general M5S manifesto includes laws to address corruption and conflicts of interest, while details of the recipes to support medium-term growth are very thin. Among other things, the movement advocates: 1. fiscal consolidation with a view to reduce public debt - with measures to strongly reduce the cost of politics and to improve the quality of public expenditure, also with a better use of technology; 2. intervention on the labor market, including measures on flexibility on the hiring side and a minimum unemployment payment; 3. measures to increase flexibility on the product markets, mostly in the network industries. On some of these issues, some converging views between the center-left and center coalition and M5S members cannot be ruled out. However, at this stage, some anti-European declarations of the M5S seem to argue against this potentially wide coalition.

All in all, any of the listed outcomes will take some time to materialize, implying that uncertainty will most likely prevail for a number of weeks. Still, a political stalemate, without major new reforms but no reversal of what has already been done, would not affect the strong fiscal policy and structural reforms already implemented, able to provide some support to the medium-long term economic growth.

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