If there was one big surprise in the European Union parliamentary elections, it wasn't so much the rise of the U.K. Independence party or France's Front National, both of which urge the break-up of the EU; it was Italy, which bucked the election's populist, anti-EU trend.
The resounding winner in the election was the Democratic Party, led by the largely untested and youthful prime minister, Matteo Renzi. His party won 41 per cent of the vote, seeing off the populist and Euroskeptic Five Star Movement, which received only 21 per cent. Silvio Berlusconi's party, Forza Italia, nailed less than 17 per cent, proving the former prime minister, who is doing community service as punishment for his tax fraud conviction, is a spent force.
The Italian bond and equity markets surged after Mr. Renzi's victory as investors took the view that he now has the popular support to push through the desperately needed reform measures, from an ambitious privatization program to cutting the taxes of low-income workers. Italy's 10-year bond yield was trading at a yield of 2.96 per cent on Tuesday, only a third of a percentage point higher than Britain's. Italy's plummeting yields are a remarkable – even astonishing – vote of confidence in a country whose economy shrank in the first quarter, is burdened with a 40-per-cent youth unemployment rate and the highest debt load in Europe. Italy is not particularly proud that it is the slave to the world's third biggest debt market, after the United States and Japan.
In the weeks before the election, the Five Star Movement was coming on strong. The party, led by former comedian Beppe Grillo, a tour de force capable of electrifying audiences with his anti-corruption rants, won 25 per cent of the vote in Italy's 2013 general election. Five Star could have formed a government, but Mr. Grillo refuses to form coalitions, arguing that doing so would have compromised his principles.
It seemed that Five Star could at least match its Italian election success in Sunday's EU election. Mr. Grillo himself boldly stated – make that yelled – every minute of every day that "We will win."
Italian law prevents polls in the last 15 days of campaigning, so no one really knew whether Five Star was set to hack off the limbs of Mr. Renzi only three months after he took office. When the results came out Monday morning, it was Mr. Grillo who was vanquished, not Mr. Renzi. The Euroskeptic parties placed first in France, Britain, Greece and Denmark, and did well in Spain and Hungary. Italy instead delivered a strong pro-euro, pro-reform vote.
There is no pat explanation for Mr. Renzi's success. Given the dire state of the Italian economy and its crushing jobless rate, a strong anti-euro, anti-austerity protest vote seemed inevitable. But it failed to happen. It could be that Italians are willing to give Mr. Renzi his due honeymoon period before punishing him. Another guess is that Italians are simply weary of political instability. Since the crisis hit in 2008, the country has grinded through four governments.
The question now is whether Mr. Renzi will exploit his popularity by pushing through reforms or whether he will, like his predecessors, talk the talk but not walk the walk. Mr. Renzi has seen off Mr. Grillo. That was the easy bit. Turning around the euro zone's third largest economy, one that could still sink Europe if its falters, is something else entirely.