Tag: Paolo Savona

The Story: Two unconventional Italian political parties, the Five Star Movement and the Northern League, have been trying over recent weeks to form a coalition...

Italy’s politicians didn’t get a three-day weekend, but instead stayed active and helped spark selling for stocks and other riskier assets. Investors on Tuesday are worried about the potential for another Italian election within a few months. In particular, they’re worried a win for populist parties could lead to the euro zone’s third-biggest economy leaving the shared currency — which would represent quite a shakeup to Europe’s status quo. That election looks to be in the cards, as an attempt to form a caretaker government led by International Monetary Fund veteran Carlo Cottarelli faces resistance. Cottarelli was put into that role on Monday by Italian President Sergio Mattarella, who had essentially blocked a coalition government of two big antiestablishment parties — the 5 Star Movement and the League. “It won’t be an election,” Salvini said Sunday, according to a Wall Street Journal report. “Even an Italian populist government’s failed attempt to ditch the euro would bring a halt to not only the ‘euroboom,’ but also the process of U.S. monetary normalization, with the market reaction comparable to the eurozone debt crisis,” Oxford Economics analysts Jamie Thomson and Nicola Nobile said in a recent note. Other analysts suggest fears about a “Quitaly” or “Italexit” scenario may be overblown. “According to the European Commission’s Eurobarometer survey, support for the euro in Italy has never been below 58%, and most recently was 59%, with only 31% opposed.” Check out: 4 ways the ECB is preventing an Italian rerun of the euro crisis — for now But Gittler still sounds bearish on the unit: “Nonetheless, currencies have to price in risk, and Italian politics is the big risk nowadays. Italian bond moves are largely isolated, but contagion risks are mounting.” How are markets moving?

The eurozone's 2010-2011 debt crisis was patched up, but not solved. The anti-establishment populists - the Five Star Movement (M5S) and the League - were enraged by President Mattarella's veto. He is known in Italy as "Mr Spending Review" and "Mr Scissors". M5S leader Luigi Di Maio called for President Mattarella to be impeached. New PM in for a rough ride - Italian press Italian papers predict that Carlo Cottarelli will have a tough time forming a government, and that once in power he will struggle to execute his plans. Read more on the challenges for Italy: Italy president names stop-gap PM Italy populists: What you should know Italian election: Its economy in charts Some Italians already suspect an EU-engineered plot, after what happened in 2011. What does it mean for the euro? Italy has a government debt burden of €2.3tn (£2tn; $2.7tn). They plan to pump billions more euros into social policies in Italy, such as boosting pensions and benefits for the poor. The latest quick fix in Italian politics is unlikely to reassure the rest of the EU.

MILAN (Reuters) - Italian President Sergio Mattarella is expected to ask a former International Monetary Fund official on Monday to head a stopgap government amidst political and constitutional turmoil, with early elections looking inevitable. Mattarella has called in Carlo Cottarelli after the anti-establishment Five Star and League parties abandoned plans to form a coalition following his veto of their choice of eurosceptic economist Paolo Savona to become economy minister. “We are seeing a decent relief rally in European markets, starting with the euro overnight, with the risk of an anti-euro finance minister in Italy being averted; but we have to see it in the context of Friday when we had a move reminiscent of 2011 in the heart of the euro zone debt crisis. We go into new elections and (League leader Matteo) Salvini could emerge as a stronger figure at the end of that. “From the macro point of view, the risks for public finances coming from the expansionary spending measures contained in the League-5 Star Movement government contract have clearly decreased, at least in the short term. “The problem both for investors and the rating agencies now is that there is likely to be: 1) an extended hiatus in power over the next few months 2) the prospect that the election campaign will become a referendum on the euro 3) the likelihood that an ever more radical government will take the reins of power after the next election. “We expect that a caretaker government would not win a confidence vote in parliament and that new elections could take place as early as October. On the one hand, a government that could have been perceived by financial markets as calling into question the participation of Italy in the European Union and its membership in the euro area has not been formed. “Now we need to understand what could be the outcome of a new vote, but what’s clear is that Europe will be at the center of the debate of the next campaign.” MARK ZANDI, CHIEF ECONOMIST AT MOODY’S ANALYTICS, in an interview with La Stampa newspaper “The latest developments add fresh uncertainty and complexity to Italy’s political situation. I expect investors to be very nervous and confused.