About a month ago I discussed in Economonitor the likelihood that the “Monti Agenda” of budgetary discipline (so far large tax increases and promises of spending cuts ) and growth oriented liberalizations (yet to be implemented) would still be at the core of agenda of the next Italian government, after the 2013 elections. In Italy, the debate is framed around the likelihood that Monti will succeed himself as a Prime Minister (“Monti-bis”), or retain some important role, either in government (Economy minister) or in politics (next President of the Republic).

The probabilistic model described in my previous post was based on the idea that the outcome depends on two factors: the electoral system that will result from the ongoing parliamentary reform, and the leaderships of the two opposite left/right coalitions, which will be determined by “primary” ballots. A “proportional system” would likely result in a “hung parliament”, and this increases the chances of ”Monti-Bis” because it produces weak coalition governments. By contrast, a “majoritarian” reform would have the opposite effect. The Monti Agenda also stands a better chance if leaders chosen to lead the left and the right parties are “moderate” (Mr. Alfano on the right and Mr. Renzi on the left), rather than “extreme” (Mr. Berlusconi on the right and an alliance of Mr. Bersani and Mr. Vendola on the left).

Two important things have changed since my article one month ago :

1. The Electoral reform actually being discussed in the Senate, a proportional system “corrected” with a premium for the winning coalition, may well turn out to be a “purely proportional system”. This is because the premium may be given to the winning coalition only if it reaches at least 42.5% of the vote, which may actually not happen. In this case the electoral reform would likely produce a “hung” Parliament

2. The “extreme” leaders are today less likely to get the upper hand. Berlusconi has declared he doesn’t want to run for Prime Minister, and Mr. Renzi, the major of Florence, has strengthened in the polls.

**Both factors tend to increase the likelihood of a Monti bi**s. In particular,

The initial estimate of the probability of a Monti-Bis, p (M2) = 43% was based on the following assumptions:

• Probability that Berlusconi is the leader if the right = 60% , compared to 40% for Alfano;

• Probability that Bersani is the leader of the left = 60% , compared to 40% for Renzi

• Probability of a “proportional” system = 60% compared to 40% for a “majoritarian” one.

In the light of recent developments, we can update the calculations with the following changes :

• Probability that Berlusconi is the leader if the right = 10% , compared to 90% for Alfano;

• Probability that Bersani is the leader of the left = 50% , compared to 50% for Renzi

• Probability of a “proportional” system = 90% compared to 10% for a “majoritarian” one

Plugging these new numbers into the Monti-Calculator gives that the probability of a Monti bis increases by 11 points, from 43 to 54%

(published also on Economonito ,),8 Nov 2012

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