Early election will increase economic risk in Italy?

Early election will increase economic risk in Italy?
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30 Maggio 2017
Categoria: Marketing Internazionale

2017 is a year of election in Europe: after Dutch elections in march, French elections in may and German elections that will be held on september also Italy probably will have an (early) election at the end of September or at the beginning October.

Last year Italy’s Constitutional Court approved a new voting system based on proportional representation that raises the chance of an early election, as demanded by the two biggest parliamentary parties.

The Constitutional Court ruled that any party winning 40 percent of the vote would have a parliamentary majority and the election should be retained in just one round.

The last news show us that now Italy’s biggest parties are considering a proportional system similar to the German model with a 5 percent cut-off for smaller parties. An agreement between these biggest parties removed any hindrance to snap elections and they eliminated the Italian elections in 2018.

Germany will vote on Sept. 24 but speculation is mounting that Italians could head to the polls in the autumn.

Democratic Party (PD) secretary and former Prime Minister Matteo Renzi and the leading members of his party wanted to have early elections and not wait for the end of the legislature in 2018.

Now Beppe Grillo (Five Star Movement) and Silvio Berlusconi (Forza Italia) have signaled a willingness to support a voting law based on proportional representation (PR) on September.

In addition, it must present a budget in October, and pass it by the end of the year.

An early vote would allow the ruling Democratic Party (PD) to avoid taking full responsibility for the 2018 budget, and could hand a new government.

In this regard, they can resolve the country’s growth problems, struggling banking sector, and try to help managing the ongoing migrant crisis.

Polls show that the centre-left PD and anti-establishment 5-Star are neck-and-neck at 30 percent, while the only other parties that would make it into parliament with a 5-percent minimum threshold would be the far-right Northern League and Silvio Berlusconi’s center-right, Forza Italia.

While the PD has continued to push for a first-past-the-post system, its leader, Matteo Renzi, said that a proportional system could be “a step forward to get out of the swamp” and hold an early election.

Given that no party is likely to reach the 40 percent threshold, the next Italian government will probably be a coalition government, with an alliance among the PD, the centrist parties and Berlusconi’s Forza Italia being the most likely outcome.

Consequence of early election

The worries of investors and international officials is Italy’s budget law since early elections could delay or complicate passage of Italy’s budget law, due in October.

Italian bonds have been the worst performers in Europe this week following Renzi’s comments. Since monday the yield on Italian 10-year bonds has risen nine basis points to 2.19 percent, pushing the yield spread over German bunds to 189 basis points.

Investors say they see Italy as the next focus of regional political risks after France, while other investors see the spread possibly widening to as much as 300 basis points, the highest since 2013.

Approving the budget law is expected to be particularly difficult this year because the government has to comply with EU budget rules. The consequence of likelihood of an autumn poll and agreement of parties, sent Italy’s stock market down more than 1 per cent on Monday.

Italian stocks also underperformed on the day, particularly the banking sector. Another negative consequence of this early election could be a risk of capital outflow.
This risk of policy fatigue is particularly large for France and Italy, which suffer from structural economic weaknesses. These risks play out over the medium to long-run, but have potentially significant downside economic effects.

The rise in Italian yields can be traced back to a combination of political risk and more general worries about subpar economic performance.

Probably it would be wise to avoid the early elections but Italian political class has already shown its lack of perspective.

Fonte: a cura di Exportiamo, di Morvarid Mahmoodabadi, redazione@exportiamo.it

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