Italian Election Can’t Produce Both Stability and Reform

Next week’s parliamentary election in Italy is a make-or-break vote for the country, which for several years has been teetering on the brink of a fiscal crisis.

If Italians choose a government that won’t push ahead with economic reform, or rolls back recent changes that were designed to make the economy more competitive, the country’s ability to repay its debt will be in question.

That would be terrible news for Italy and the euro area as a whole, which might not be willing or able to bail out its third-largest economy. With days to go before the vote on Feb. 24-25, only this much is certain about the outcome: The next government in Rome may be stable or reformist by Italian standards, but it will not be both.

An average of the latest opinion polls, which weren’t permitted after the week up to Feb. 8, put Pier Luigi Bersani’s center-left coalition in the lead, its margin over the center- right People of Freedom, led by Silvio Berlusconi, dwindling to fewer than five percentage points. Bersani should win the lower house, but you cannot rule out a Berlusconi upset — already a three-time prime minister, he seems to have the political lives of a cat.

To read the rest, please see the original piece posted on Bloomberg View.