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TEHRAN, May 28 -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.
TEHRAN, Young Journalists Club (YJC) -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. The president will meet Cottarelli at 1130 am (0930 GMT) on Monday, an official said.
Below are some reactions to the latest developments:
MICHAEL LEISTER, RATES STRATEGIST, COMMERZBANK
“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.
“The key point is that we believe the relief is going to be short-term only. We go into new elections and (League leader Matteo) Salvini could emerge as a stronger figure at the end of that. It’s quite telling that Moody’s highlighted structural risks on Friday.
“We don’t think this rally can be sustained. Italy has simply bought some time, nothing more.”
NICOLA NOBILE, SENIOR ECONOMIST, OXFORD ECONOMICS
“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 is that those who are for and those who are against the euro - which is set to become the main topic of a potential new vote - will become more radical in their positions. This involves the risk that the anti-euro front will win.
“Carlo Cottarelli, as far as I understand, will not have the confidence of the parliament, so he will only manage current affairs.
“The debate on the reform of the euro zone, led above all by French President Emmanuel Macron, is due to slow down further, awaiting a political government in Italy with a mandate to decide what to do.”
GUY STEAR, HEAD OF EMERGING MARKET & CREDIT RESEARCH, SOCIETE GENERALE
“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.
“The outcome of the next election is looking more threatening than ever. Investors therefore will need to be brave if they want to hold 10-y BTP at 220bp over Bund, ahead of the prospect of serious challenges in the autumn when fears for capital recovery may loom.
“Today (with the U.S. and UK out), we may see a relief rally as the worst is postponed. But many investors will see that as an opportunity to lighten longs.
“Our forecast remains for a Moody’s downgrade of Italy to Baa3 in the next few weeks. That should be accompanied only by a Stable Outlook. So no great impact on markets just now. But there is a risk that more negative moves could follow, as a function of how aggressive and messy the next few months are.”
WOLFANGO PICCOLI, CO-PRESIDENT, TENEO INTELLIGENCE
“Given the likely opposition of both the 5-Star Movement and League (to Cottarelli), the ‘neutral’ government will likely fail to win a confidence vote, leaving it in office as a caretaker administration. This means that Italy will be left with no effective government backed by a clear political majority in parliament until the end of the year. In short, 2018 will be largely a wasted year, with no ability to deliver any meaningful policy while the end of QE is approaching
“Looking further ahead, it is hard to see how Italy can emerge from the ongoing political-institutional crisis in a better place politically. The main risk is that the stand-off will further embolden the 5-Star, and especially, the League. The two populist parties will blame the ‘establishment’ for denying them the right to govern. A narrative that will further polarize society.
“It is also likely that the next election campaign will feature significantly stronger anti-Euro and Eurosceptic tones.”
HOLGER SCHMIEDING, CHIEF ECONOMIST, BERENBERG
“Even if the immediate risk of having a eurosceptic finance minister in Italy has now been at least postponed, Italian uncertainties will continue to weigh heavily on sentiment in Italy and — to a lesser extent — its euro zone neighbors in coming months.
“In new elections, the radicals will likely rail even more loudly than before against Italy’s pro-European ‘establishment’ and an alleged ‘German hegemony’ exercised through the rulebook of the single currency. As the will to accept — or not accept — the rules of the euro was Mattarella’s key issue upon rejecting Savona, the radicals — and notably the League — may fight a new campaign on a more explicit anti-euro platform.
“In the March 4 vote, concerns about immigration had played a bigger role than European issues. Especially the League may frame a new election as a de facto referendum on Italy’s role in Europe.”
SILVIA ARDAGNA, ANALYST, GOLDMAN SACHS
“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.
“We believe political uncertainty will remain elevated. 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. On the other hand, potential new elections, most likely in October, would unlikely be seen as a positive development for the Italian economy either.”
GILLES GUIBOUT, PORTFOLIO MANAGER AT AXA INVESTMENT MANAGERS, PARIS
“It’s another moment of uncertainty. It is not clear to me how much the 5-Star Movement and the League are still aligned. From what I understand (League leader Matteo) Salvini was not interested in getting a government going.
“As expected from the beginning Italy will return to vote. A rebound is possible in the short term since there won’t be a government, but if there is (a rebound), I don’t believe it will last.
“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. Bond yields will rise, and volatility too. It will be a chaotic situation.
“As days go by however, (investors) may see President (Sergio) Mattarella’s choice as positive, because it put a brake on the M5S-League coalition, denying them the eurosceptic Treasury minister they wanted.”
Source:Reuters
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