A delicate political equilibrium will persist in Italy

The year ahead will likely be characterized by the same delicate political equilibrium as in 2015. Political risks are multiple, but still see the balance of forces tilted on Prime Minister Matteo Renzi's side. This would guarantee the reform momentum to continue its virtuous trend, ultimately by completing the main structural changes in the pipeline. On the flip side, any political turmoil, ranging from a strengthened (in size and intentions) share of PD's dissidents to, ultimately, early elections, would undermine materially the progress the country has made so far, especially with respect to the improved credibility achieved domestically and internationally by the government. 

Recall that PD is the party in government, centre-left, and there are currently some dissenters within the party that oppose the reformist push. The main downside risks are threefold. The evolution of the PD's minority in terms of size, composition and willingness to affirm its own view will be key in shaping its internal stability. The second source of risk stems from the combined effects of the declining popularity of PD and the electorate's growing support of the Five Star Movement (M5S). This antiestablishment movement seems to be capturing the voting preferences that PD has been marginally losing since the last regional elections in May. 

Given the lack of a clear manifesto, M5S is confined to the role of a prostest party rather than as an alternative party. However, increased popularity for M5S would represent an alarming signal for the government. A third channel of risk is the current refugees and terrorism crisis. These events could increase the political echo of parties such as "Northern League". This adds to the uncertain configuration of a right wing in Italy. A coalition between Silvio Berlusconi's Forza Italia and Matteo Salving's North Lega could become game changer in the current delicate political equilibrium. 

The ability to lead voting preferences will be the real challenge for Renzi next year. This could be affected by further developments in ongoing political scandals (such as the recent corruption case involving the local administration in Rome) and the composition of any new political coalition PD is willing to forge to secure higher numbers in the Parliament. In addition, two key events will be the mayoral elections in Milan and in Rome in the spring of 2016, which will allow quantifying the traction of the right wing opposition and M5S in the two most important Italian cities. In addition, Rome will host the next Jubilee in 2016, making Italy the focus of international attention.