Italy – the new good man of Europe

May 28, 2014

Up until Monday, Italy used to be known as the sick man of Europe. It has huge debts, sclerotic growth and had been ruled by a billionaire prone to a bunga-bunga parties. It was at risk of becoming the laughing stock of the currency bloc. The relationship in recent years between Italy and Germany has been dreadful. But could things be about to change?

Italy could become the best man of Europe after the EU elections last weekend. Italian Prime Minister Matteo Renzi’s Democratic Party won an impressive 33% of the vote, beating off competition from the anti-establishment Five Star Movement led by Beppe Grillo. Silvio Belusconi’s Forza Italia was left straggling in Renzi’s wake with only 18% of the vote.

This contrasts sharply with France, where the anti-EU, far-right Front National beat President Francois Hollande’s Socialists, leaving the President clinging to power. The win for Marine Le Pen’s party could shift the power dynamics in the euro zone, leaving a space open for Matteo Renzi to get Italy back from the periphery and into the core of Europe.

The German-Franco alliance looks shaky following the win for Front National. Now that Italy has rejected an anti-euro political force, Angela Merkel could start to warm towards Rome. If Merkel can open her arms to Italy then the third largest economy in the currency bloc could score a PR coup, and solidify itself in the heart of the currency bloc.

In the wake of the elections, Germany and Merkel need all the pro-euro support they can get, which is good for Renzi, a rookie Prime Minister. Renzi could definitely benefit from being under Angela Merkel’s wing, but make no mistake: Merkel could also benefit from associating herself more closely with this charismatic and popular 39-year old. With the cold wind of anti-euro sentiment blowing hard across the EU, Merkel needs to find shelter wherever there is pro-EU support.

While Renzi is, deservedly, still celebrating his win, stepping into shoes vacated by the French in the heart of Europe won’t be easy, and he has a difficult path ahead. He still has to change the constitution, and he needs the support of Forza Italia to do so. He also needs to push through a package of painful economic reforms. This will stretch his charisma to the limit as he tries to go where others have failed. Austerity is never a popular choice for a politician, so it would be natural to see some of his support fall away in the coming months and years.

However, Renzi managed to pull Italy back from the brink of political Armageddon by putting the Five Star Movement to bed as a political force in Italy for now. If he can balance pleasing Angela Merkel, with making much-needed adjustments to his economy at home then Renzi could be the big winner from these EU elections.

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