March 5, 2018 / 7:18 AM / in 4 months

Reaction to Italy's election outcome

(Reuters) - Italy faces a prolonged period of political instability after voters delivered a hung parliament in Sunday’s election, spurning traditional parties and flocking to anti-establishment and far-right groups in record numbers.

A man waits to enter to cast his vote at a polling station in Rome, Italy, March 4, 2018. REUTERS/Max Rossi

Below are some initial reactions to the vote:

ALBERTO GALLO, FUND MANAGER & HEAD OF MACRO STRATEGIES, ALGEBRIS

“There are so many scenarios that it is hard to say which government will be formed but, if parties avoid stepping back on reforms already done — because the economy is growing and there are more jobs — the markets should not worry too much about these results, which were broadly in line with expectations.”

LORENZO PORTELLI, STRATEGIST, AMUNDI

“We have to wait for final results and a clearer picture could emerge as soon as this afternoon. The possibility that no coalition would reach the majority was widely expected. Negotiations starting from March 23 will be crucial. At the moment we do not believe at the hypothesis of a populist government. We are in a very fluid framework and we cannot exclude some type of government with a short-term mandate to reform the electoral law. It is important to underline that, with respect to 2013, both the 5-Star and the League have smoothed their euro-skeptic tones: they have focused mainly on immigration and security issues.”

ALESSANDRO TENTORI, CHIEF INVESTMENT OFFICER, AXA

“The political message of the vote is one thing, but the implementation of the government remains difficult. We believe we are heading towards a technocrat government. There is a strong message from the voters, but it did not secure a majority for any of the political parties. I don’t expect big movements on markets because an inconclusive outcome was already priced in. It would be different if in the next few hours the possibility of a Europe-skeptic alliance, such as between the 5-Star and the League, materialized, but that seems unlikely.”

NICOLA NOBILE, ECONOMIST, OXFORD ECONOMICS

“A vote dictated by gut feelings: it remains to be seen what happens now, whether the (anti-establishment) 5-Star decides to find an agreement with the League or with the PD. At the moment everything is uncertain, and the situation could remain like that until the appointment of the speakers of the lower house and of the Senate. We expect a couple of weeks of absolute uncertainty.

“A parliament without a majority was widely expected, but what the market did not foresee is a boost of the populist movements and the weak performance of the moderate parties. It’s unclear how exactly the 5-Star or the League, which together hold more than 50 percent, stand on issues relating to Europe or the banking union.”

RAFFAELLA TENCONI, ECONOMIST, ADA ECONOMICS

“The market reaction won’t be very positive: both the PD and (Silvio Berlusconi’s) Forza Italia did worse than expected and worse than polls had predicted. With the League this strong, Matteo Salvini could ask to be appointed prime minister and this could put the centre-right coalition at risk.

“There are two options, in our view: a centre-right coalition or a coming together of the League and 5-Star. We don’t believe there will be a repeat vote because - whether this is good or bad - in Italy eventually you always get to an agreement. It could take a couple of weeks, which is relatively short if compared with other European countries.”

MATTEO RAMENGHI, CHIEF INVESTMENT OFFICER FOR ITALY, UBS WEALTH MANAGEMENT

“We expect lengthy negotiations after these elections, which may lead to increased volatility of Italian assets. A broad grand coalition would be well received by markets as it could result in political stability and fiscal discipline. Repeat elections could prolong uncertainty and weigh on Italian assets. The Italian equity market has not priced in electoral uncertainty, but current yields on government bonds suggest they have incorporated some political risk.”

FABIO FOIS, ANALYST, BARCLAYS

“We expect the formation of a wide and heterogeneous coalition that could include anti-system parties. We do not expect such a coalition to deliver meaningful structural reforms, and depending on its composition, we see the risk that previous reforms could be unravelled. Over the medium term, we remain of the view that the next legislature will be characterized by political instability that could culminate in government crisis and or snap elections.”

Reporting by Milan newsroom; Editing by Toby Chopra

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