Taking a look back, Prime Minister Monti has done wonders for the Italian economy. Although not bolstering any phenomenal rates of growth, the leader of a technocrat government helped to contain the effects of the European financial crisis in Italy for the last 13 months. While working hand in hand with both German and French leaders, Monti alleviated global focus on rising debt costs, forcing Italian bond rates lower by 200 basis points since his appointment in November of last year. The country was additionally able to tap credit markets again, obtaining the lowest rates in almost two years.
However, with public discontent over recent austerity and tax increases rising, many of Monti’s previous allies have fallen away. In particular, former Prime Minister Silvio Berlusconi and his People of Freedom (PDL) party, have become disenchanted with the current administration. The sentiment was heightened last week when representatives of the PDL walked out of an economic reform vote – calling for a vote of no-confidence in the prime minister. The notion was unfortunately backed by several other members of the Democratic Party – Monti’s major backer in the political arena.
With Monti’s final resignation to come in the next few weeks, it will be up to Italian President Giorgio Napolitano to dissolve parliament, and either appoint a successor or keep Monti as the country’s PM. General elections will follow, placing the date somewhere in February 2013 at the earliest.
Monti’s resignation is no doubt a blow for the Euro. The prime minister was seen as working alongside fellow EU leaders – who are still seeking to stem effects from the European financial crisis. However, with Monti now out of the picture, the general election opens up the possibility that Silvio Berlusconi will back track on earlier commitments and run for a fifth term next year. The scandal riddled politician is likely to entertain the idea of pulling back on European austerity and questioning the necessity of EU membership.
The fundamental outlook will likely reinforce technical resistance at 1.2965 in the short term – lending to continued bearish declines towards the 1.2800 round figure support. The psychological 1.3000 barrier is helping to keep any EURUSD bullish moves at bay.
Source: FXTrek Intellicharts