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As Greece leads the news, Italy’s problems mount

Italian Prime Minister Matteo Renzi greets leaders arriving for a meeting of G7 leaders on March 24, 2014 in The Hague, Netherlands.
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Italian Prime Minister Matteo Renzi greets leaders arriving for a meeting of G7 leaders on March 24, 2014 in The Hague, Netherlands.

While Greece has been hitting the headlines recently, Matteo Renzi has quietly had a tough few months.

The Italian prime minister has had to tackle difficulties both abroad and at home – including a slow economic recovery. All this presents a difficult backdrop for Renzi as he faces 22 million voters with elections in 7 regions and over 1,000 municipalities this weekend.

Corruption, the constitutional court and migrants

On the domestic front, we've seen protests over education reform and a court ruling that pension cuts were unconstitutional, a decision that will require 13 billion euros ($14.2 billion) in repayments.

On top of that, there are accusations of political corruption and organised crime links within Renzi's Democratic Party (PD). When I spoke to Renzi earlier this year, he said he was declaring war on corruption. That war hasn't stopped criticism of how contracts were awarded at the Milan Expo, never mind the backlash over mounting costs and delayed completion.

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On the international scene, Renzi's much-touted plan to deal with the European Union migrant crisis suffered as several governments refused to participate. Awkward.

Growth

Having said that, let's not ignore the positives. Early efforts with labor and bank reform show progress and Italy's economy is showing signs of life, expanding 0.3 percent in the first quarter – the first uptick since the third quarter of 2013 -- as a weaker euro and lower oil prices help push the country out of its longest recession on record.

The economic figures tie with recent business confidence data and yet unemployment is still ticking higher - hitting 13 percent in March. As one Italian worker told me in Milan: "If recovery is happening, it isn't happening fast enough."

Polls predict a solid showing in regional elections

The PD may have seen its support soften recently, yet it is still predicted to win at least four of the seven electoral regions, while taking up to 37 percent of the aggregate vote.

Admittedly that vote count falls short of the stellar 40.8 percent achieved last year in the European parliamentary elections but it still sounds pretty good to me - so why should we care?

First, Italian politics is never simple. Second, we should view this vote as a test of public support for Renzi and thereby his reform agenda.

The critical question then is whether there's a risk to his plans for reform.

Watch out for these key regions

The key battlegrounds for Renzi are Campania in the south and Liguria in the north. Renzi has spent more time fighting fires within his own party since his rise to power in February last year than he does fighting a similarly fragmented opposition. And that is the crux here.

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In Liguria, allegations of vote-rigging in January led to a party rift. Left-leaning voters must now choose between Renzi's candidate and an alternative who has the support of dissident PD lawmakers looking to undermine Renzi's leadership.

That split vote might ultimately hand victory to the centre right candidate and more leftist members of Renzi's party deciding to to break away. This could pose problems in the senate where Renzi's is trying to push through electoral reform and education laws.

As Wolfang Piccoli at Teneo Intelligence points out "both measures face stiff opposition from the PD minority, and the government now enjoys a senate majority of only about 10 votes. In the aftermath of the elections, if more left-wing PD senators withhold their support or decide to leave the party, Renzi may begin to contemplate a return to the polls."

Is that likely? Probably not, but that doesn't mean we should assume Renzi's job will get easier.

Poll readings unreliable

The other point worth mentioning here is that opinion polls in Italy are notoriously inaccurate. Both overestimating and underestimating PD's support particularly in local elections. There is now a two week poll black out which further complicates the issue.

What about populism?

So how is the populist vote fairing in Italy? It feels remiss not to talk about Beppe Grillo and the 5* Movement following the shake-up in Spain's regional elections last weekend. The 5* movement probably wins the prize in Italy for the major party most likely to tear itself apart. Though I'll admit It's been a close contest. Despite this, they has been polling around 20 percent of the vote. Clearly trailing the PD by a wide margin but still the second most popular party in Italy.

Before this weekend, I'd read numerous reports suggesting that the wave of populism in Europe has peaked. If that's the case I'd argue the wave has a long way to crash.

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Nick Spiro of Spiro Sovereign Strategy warned this week that regional elections in Spain were a warning for bulls."Just as Italy's new electoral law will result in more stable governments, Spain's political scene is splintering, boding ill for the implementation of further fiscal and structural reforms."

I absolutely share his sentiment on Spain, let's hope this weekends vote doesn't lead us to raise similar concerns about Italy.

Watch this space.