Italy's Central Bank As Banking Report Due...Tourists take in the view from the top of St Angelo's castle as an Italian national flag flies from a flagpole nearby in Rome, Italy, on Sunday, May 5, 2013. Italian banks' corporate loan book will worsen this year as the euro region's third-biggest economy remains mired in its longest recession in two decades, according to the nation's central bank. Photographer: Alessia Pierdomenico/Bloomberg
The most likely outcome is a hung parliament with the anti-establishment Five Star Movement finishing first in the national polls © Bloomberg

Sergio Mattarella, Italy’s president, ushered the country towards a general election by dissolving parliament on Thursday, launching a two-month campaign that will mark the next big political test for the EU given the rising strength of the country’s populist opposition parties.

Paolo Gentiloni, the centre-left prime minister, said at a press conference in Rome that he had achieved his goal of bringing the legislature to an “orderly conclusion” and said Italy was “back on track” after the worst economic crisis in the postwar period.

The election is shaping up to be a three-way contest between the anti-establishment Five Star Movement, which is first in national polls; the ruling centre-left Democratic party (PD), which has dipped into second place, and a resurgent centre-right, led by former prime minister Silvio Berlusconi in conjunction with the anti-euro Northern League.

With each expected to win between a quarter and a third of the vote, the winner may struggle to form a government, possibly plunging the country into a period of protracted uncertainty that could unnerve markets and unsettle foreign governments.

“The worst outcome in terms of governance and stability is also the most likely one: a hung parliament,” Wolfango Piccoli, an analyst at Teneo Intelligence in London, wrote in a note. “This would mean that in the aftermath of the vote, Italy enters again a difficult political phase characterised by recurrent noise about snap polls, poor governance and a negative reform outlook.”

Mr Gentiloni and his cabinet will remain in charge until the vote, to be held on March 4. 

Italy last held a general election in 2013, when the PD eked out a narrow victory that has allowed it to govern for the past five years under three different prime ministers: Enrico Letta, Matteo Renzi and Mr Gentiloni. Mr Renzi remains the PD’s leader.

Although Italy returned to economic growth, the recovery has been sluggish and many Italians have not seen any tangible improvement yet. Meanwhile, the country has had to cope to with a large influx of migrants rescued in the Mediterranean. Both factors have led to a sharp drop in the PD’s poll numbers, and fuelled populist opposition parties ahead of the election.

“All the signs are pointing against Renzi,” said Giovanni Orsina, a professor of political science at Luiss university in Rome. “The ship seems to be sinking, but the quality of the campaign will still matter.” 

Five Star, which polls suggest is likely to emerge from the election in first place, had previously ruled out any alliances with other parties. However, Luigi Di Maio, its candidate for prime minister, said last week he would be willing to entertain deals with other parties in order to form a government.

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