Italian politics in a dead end – any way out?
Published date: 26 Feb 2013 |
Disclaimer
The one thing that seems clear after the Italian election is that nothing is clear at all and uncertainty will linger on. With no coalition getting a majority in both houses of parliament, in-governability has won for now. As forming a stable coalition will be difficult if not impossible, we see a high chance for new elections within the next few months. And no one can be sure that Italian voters, next time they go to the polls, will give pro-reform parties a chance. As Bersani put it: Italy is in “a very delicate situation.”
Key election results:
Bersani’s centre-left coalition won the lower house as predicted by pre-election polls. Bersani even got most seats in the Senate. However, because of a surprisingly strong result for Beppe Grillo’s 5-Star Movement, Bersani does not have a majority in the Senate, which is required to form government. Even if Bersani joins forces with Monti, their combined seats are not enough.
Lower house: Bersani 29.6%, Berlusconi: 29.2%, Grillo: 25.5%, Monti: 10.6%. Biggest coalition guaranteed a majority, ie Bersani majority.
Senate: Bersani: 123 seats, Berlusconi: 118 seats, Grillo: 53 seats, Monti: 19 seats. No majority for Bersani and Monti.
Apart from an outright Berlusconi win, this stalemate looks like the worst possible outcome (in contrast to what early results from exit polls indicated yesterday). We basically see the following options now:
Grand Coalition (or even a government of national unity). Bersani and Berlusconi could form a Grand Coalition with a healthy majority in both houses of parliament. For sure, that would be a coalition between sworn enemies. However, Berlusconi indicated today that he was open for talks. If such a coalition works against all odds, it could bring Italy the period of political stability the country needs so much. Maybe the election shock is big enough to try unusual solutions as it happened in Germany in 2005. At the time, CDU and SPD formed a Grand Coalition not because the parties were so close to each other but basically out of necessity to continue along the lines of the reforms implemented by Gerhard Schröder from 2003 on. For such a coalition to work, need a broad agreement in society about what the country needs. And that is exactly why we doubt that a Grand coalition in Italy is very likely.
If there is no national unity – how can you form a government of national unity? Again, only if you feel back against the wall. But as that feeling does not seem to be widespread in Italy, we currently do not attach a high probability to a Grand Coalition.
A minority government led by Bersani.
This is the scenario with the highest probability in our view. His coalition has won an absolute majority in the lower house and is, together with Monti, around 20 votes short a majority in the Senate. Bersani could try to persuade senators from Berlusconi’s and Grillo’s camp to tolerate his government. Such a government would probably not live for long and it would not be strong enough to deliver the reforms needed. Financial markets would probably not be amused.
Technocrat government 2.0. Italy’s president could ask Mario Monti to form a new technocrat government, drawing parliamentary support from wherever he can. But can Monti be credible PM after getting only 10% of the vote? We don’t think so.
New elections within few months, maybe after trying 2) or 3) first. New elections can easily lead to even more votes for the anti-establishment 5-Star Movement. To prevent this, the Italian President could appoint a caretaker PM to change the electoral law to increase the likelihood of a definitive result in a new election. However, the parties were unable to agree on modifications in the electoral law last year. New elections could also bring new faces. It is possible that Bersani is forced to resign as party leader and give way for a new face, probably Matteo Renzi. Monti may not stand in a re-run given his very poor results (though he claimed to be satisfied on election night). Finally, even Berlusconi could be forced to take a step back and give more room for Angelino Alfano. Thus, there is some likelihood – though not a very big one we admit – that Grillo’s strong result and the current deadlock can produce new faces in a new election.
Market Impact:
Fixed income: Markets were caught off guard by yesterday’s message from the Italian electorate, and until the next step is known, we anticipate uncertainty to force peripheral spreads wider along with a general weakening of the single currency. It’s also fair to assume that general risk appetite for equities and credits will be muted, at best. We look for Italian government bonds to underperform over the coming weeks and a breach of the 5% level, latest seen in October last year, seems probable to us. Meanwhile, core government bonds (especially the long end) will benefit as they always do when risk aversion appears, so expect Bunds and T-notes to outperform going forward. However, for now we don’t see this turning into a full Euro-zone confidence crisis so risk sentiment will not plummet to the depths of last summer, so we stick to our forecast for now.
cama ci andrei piano a dirlo (e ne ho cmq anche io di Bfp) 
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