The Italian general election on 24-25 February is a key event that will determine whether the reform process that was speeded up under Mario Monti’s technocrat government can continue or whether it will lose substantial momentum. The outcome is far from certain.
The latest opinion polls, which took place on 8 February, show that the centre-left had a lead but that it was narrowing. It is not permitted to publish opinion polls in the last two weeks prior to the elections but anecdotal evidence suggests that Beppe Grillo’s Five Star Movement and Silvio Berlusconi’s centre-right coalition may have gained further votes since then.
Political stability should be secured if Pier Luigi Bersani’s left wing coalition wins a majority but the progress of reform may slow. We believe the most likely outcome is a fragile centre-left coalition, which may not last for long, as the far left SEL party and Mario Monti will find it difficult to agree on a whole range of topics. If the centre-left does not win a majority it might prove impossible for any parties to form a governable coalition and new elections could follow. It is considered very unlikely that Berlusconi’s centre-right coalition will win enough votes to form a government.
If the centre-left wins a majority in both the Camera (lower house) and the Senate (upper house), we expect peripheral spreads to narrow and EUR/USD to strengthen. A more blurred outcome is expected to result in some temporary spread widening. This could be more pronounced if it proves impossible to form a government and a new election will be needed. However, even in this scenario, we do not expect a full-blown return of the debt crisis. The ECB’s Outright Monetary Transactions (OMT) programme should secure renewed buyer interest if spreads widen too much.
Italian law prohibits any opinion polls from being published in the 15 days before the elections. The latest opinion polls, which took place on 8 February, showed that Pier Luigi Bersani’s left wing coalition had about 35% of votes, while Berlusconi’s centre-right is catching up at about 29% of votes. Mario Monti’s centre coalition is far behind with about 14% of votes. Beppe Grillo’s Five Star Movement, which is kind of an anti-euro protest party, would get about 16% of votes according to these polls. It is possible that polls are affected by Berlusconi voters being less willing to say who they intend to vote for.
It is not illegal to perform private opinion polls in the 15 days prior to the election; it is only illegal to publish the results.
The Italian election system
The Italian general election takes place on 24 and 25 February, with voting ending at 15:00 CET on Monday. It is tradition that voting takes place for one and a half days.