Europe News

Italy's Renzi losing votes left, right and center?

Italy's Renzi has nothing to worry about: Analyst

Italian Prime Minister Matteo Renzi and his center-left party suffered a raft of damaging defeats in local elections this weekend, losing ground to both the right-wing Northern League party and anti-establishment 5-Star Movement.

With 22 million Italians eligible to vote in seven regional elections and more than 1,000 municipalities, it was always possible that Renzi, who is trying to implement widespread – and some unpopular – structural reforms, could be vulnerable to his rivals.

While the votes were not yet fully counted Monday morning, projected election results by Italian news agency ANSA suggested that Renzi's Democratic Party (PD) candidates were ahead in the central regions of Tuscany, Umbria and Marche and the southern regions of Puglia and Campagnia -- where the center-left candidate was marginally ahead as of Monday morning - but the party had nonetheless conceded many votes to both the right and left.

Wolfango Piccoli, managing director of risk consultancy Teneo Intelligence, told CNBC Monday that the result was "much weaker than expected."

"Let's be very clear, the result is much weaker than expected and although it's not the disaster…it certainly is a set-back," he said, adding, "It is certainly a warning to Renzi and he cannot ignore that."

Early indications show that populist movements, such as the 5-Star Movement, which campaigns on an anti-euro and anti-establishment note and the Northern League party, which opposes immigration and the European Union and would like to see Italy's prosperous north break away from the more impoverished south, appear to have gained a chunk of votes.

VINCENZO PINTO | AP | Getty Images

As expected, the candidates expected to win in the northern regions of Liguria and Veneto were those affiliated to Silvio Berlusconi's Forza Italia party and its Northern League ally.

Only 53.9 percent of Italians eligible to vote turned out and the pre-election campaign has been dominated by allegations of corruption against members of Renzi's PD party – one of whom being the candidate for the Campania regional election.

Read MoreAs Greece leads the news, Italy's problems mount

While potentially winning five out of seven regional elections does not appear a defeat, conceding votes to the left, right and center signals that the upstart former Mayor of Florence, who led a political coup against former leader Enrico Letta last year, could himself be facing trouble -- both within his party and without -- as he attempts to make structural reforms.

Piccoli said Matteo Renzi needed to focus on uniting his party which has suffered from infighting.

"I think the message for Renzi coming out of this election is that unless you unite you're not going to win the election -- they lost Liguria (in the vote this weekend) because there was a split within the center-left," he said. "Renzi now has to reach out to the leftists within his own party."

Reforms at risk?

In the week running up to the elections, an analyst at Barclays Research believed the elections represented "an important test for the government and the structural reform agenda deployed so far" and the result could impact negatively on Renzi's ability to reforms.

"While…frictions within the PD party may have gone so far as to be difficult to resolve, the most controversial structural (labour market) and institutional (voting system) reforms have already been approved," Fabio Fois said in a note last week.

Italy looks to teach Greece a lesson

"However, more reforms do need to be deployed, including a second leg of the labor reform which should focus on, among other issues, improving the wage bargaining system (possibly the most important step left to be taken, in our view) to quickly re-align nominal wage growth to productivity."

Italy shouldn't 'slack off' on reform: Analyst

Barclays, meanwhile, notes that should Renzi's party score poorly at the elections, dissidents within the party "may decide to take a more radical approach on the remaining reforms," and could upset the reform process.

"While it may be too early to predict a PD party split, we think that the speed of reform may be slow in the future (in particular concerning the second leg of the labor market and the education system reforms), unless Renzi finds alternative support within the Parliament, and in particular in the Senate, to keep reform implementation on track and keep up the pace delivered so far," the bank said.

Delaying reforms could imperil Italy's tentative economic recovery after a prolonged recession, however. On Friday, Italy's statistics service, Istat, confirmed preliminary gross domestic product (GDP) data that showed the economy grew 0.3 percent in the first quarter, marking the first quarter of growth since September 2013.

Growth has been primarily spurred on by external factors, such as the weaker euro, however and as such, the recovery is fragile at best, Raj Badiani from IHS Global Insight warned on Friday.

Olive oil crisis?

"The risk remains that the favorable backdrop fails to spark a noteworthy recovery in Italy during 2015, with the country lagging behind as growth accelerates more acutely across the single currency region. Furthermore, poor labour market developments could offset the favorable external backdrop, extinguishing the recovery spark in Italy during 2015," Badiani said in a note.

"Such an outcome would bring to even sharper focus on the structural impediments sitting on Italy's growth potential, and ramp up the pressure on the country to deepen its reform drive."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld