Italy: Markets hardly bat an eye on elections - Rabobank
|Analysts at Rabobank, suggest that the Italian elections, risky as they always are, are scheduled in less than two weeks but large parts of the markets hardly bat an eye and even though they don’t expect the elections to turn into a systemic crisis for the Eurozone, this complacency is risky.
Key Quotes
“The Italian elections are on March 4 and will likely yield a hung parliament. The centre-right has then the best chance to form the next government, but the less leverage Forza Italia will have over the (Northern) League, the lower the probability of success. If the centre-right fails, a Grand Coalition including the Democratic Party, Forza Italia and other centrist parties will get more likely. If that fails as well, President Mattarella will ultimately have to ask current PM Gentiloni to head a caretaker government and to navigate Italy towards fresh elections.”
“The balance of risks is skewed to the downside. Markets like the low-key management style of current PM Gentiloni. A status quo, in which a Grand Coalition is formed under his command, would be the most stable and predictable situation. Everything else would be considered worse, including the formation of a centre-right government.”
“This is because there are too many uncertainties regarding the (Northern) League’s policies. The market may be too complacent about this, focusing only on Five Star. If the League’s ‘fanatic’ ideas ultimately push Forza Italia towards the Democratic Party, the market will turn out to be right. If not, we may see a repricing of risk assets.”
“Italy will stay in the Eurozone, but proposals to alter the budget rules, for more (fiscal) sovereignty and to increase risk-sharing are likely to be put forward. Eurosceptic rhetoric could also increase. If the Italian government were to adopt a highly confrontational stance, which is certainly a possibility if a centre-right government emerges, Italian politics could weigh on Eurozone reform.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.