Former Italian PM rejects the idea of a new election in 2019; says European vote will be an 'earthquake'

  • In the Spring, voters in Europe will be called to the polls to choose new representatives for the European Parliament. Letta said these elections "will be a turning point" for Europe due to growing support for populist parties.
  • The former PM also told CNBC that the budget for 2019 could spell problems for Italy.

Italy is unlikely to have new elections in 2019, despite ongoing questions about the future of its government; a former Italian prime minister told CNBC Friday.

"I don't think 2019 will be the year of a new national vote," Enrico Letta, former Italian Prime Minister, told CNBC's Steve Sedgwick on the sidelines of the Ambrosetti Forum.

The two-party coalition that took power in Italy last May is shaking financial markets with promises to increase public spending. But their inexperience at the national level and the fact that they are two populist parties from opposite sides of the political spectrum have led many analysts to consider until when they will manage to stay in government.

"But at the same time I think the European vote will be in any way an earthquake at the European level and I think the national level too," Letta, who served as prime minister between 2013 and 2014, said.

Italy's former prime minister, Enrico Letta
Elisabetta A. Villa | Getty Images Entertainment | Getty Images
Italy's former prime minister, Enrico Letta

In the Spring, voters in Europe will be called to the polls to choose new representatives for the European Parliament. According to Letta, these elections "will be a turning point" for Europe.

"Because the big changes today and the big troubles in the public opinion will be there in the European vote...We had 20 years of stability, we had two pillars, left and right, cooperating at the European level. Next year, the fragmentation will be total, it will be very complicated to find majorities," he said.

In the aftermath of the sovereign debt crisis, many Europeans have become fed up with the political system. The many years of lackluster economic growth and high unemployment have led to a widespread frustration, which has been exacerbated by an ongoing migrant crisis.

All of these issues combined has contributed to a surge in public support for populist parties. These have gained more space in politics in the last couple of years through the various national votes — a phenomenon that is likely to hit European institutions next year.

Italian spending plans could spell out problems

Investors in Europe have been particularly worried about Italy as the government prepares the new spending plans for 2019.

This is because the two parties, Lega and the Five Star Movement, want to make changes to the pension system, implement a citizens income, reduce taxes, and stop a VAT increase that was scheduled for next year. According to UBS analysts these measures could add up to between 4.5 and 7 percent of gross domestic product (GDP).

Such measures could derail Italy's reduction of government debt — a problem in the eyes' of investors given that it has the second highest debt pile in Europe, reaching 130 percent of GDP.

Letta told CNBC that the budget for 2019 could spell problems for Italy. "Italy is the weakest country in terms of debt and in terms of risk in case of instability at the world level," he said.

"There's a problem of distance between words and facts," Letta said about the Italian government manifesto.