Bersani-Monti coalition best outcome for the euro, suggests

A Bersani-Monti coalition, the prevailing market expectation at present, will me the most positive outcome of the Italian elections for the euro, according to economists at

Next in line could be a Bersani-led government of the left, as investors concern about reform delays in this case could make this outcome much less positive.

“A hung parliament should leave the euro vulnerable to escalating political uncertainty with unstable minority governments or even a grand coalition between centre-left and right likely to leave investors worried about the economic and fiscal outlook for Italy. A potential win for Berlusconi’s centre-right coalition seems the least likely and the most EUR- negative outcome,” said Bill Hubard, chief economist at the firm.

The outcome of an hung-parliament has grown in probabilityand it could add to the political uncertainty in Italy if a would-be minority government is unable to continue the reform process.

Berlusconi recently indicated that he is willing to join a grand coalition of right and left wing parties. Such an outcome could reduce the political uncertainty in the immediate aftermath of the elections only to a degree. Some risks will likely remain.

In particular, the Monti technocrat government was supported by a broad coalition of the main political parties. The arrangement didn’t prove sustainable and government drive for reforms was soon lost as market conditions improved. In the case no party agrees to form a minority government or join a grand coalition this could lead to new elections, as was the case of Greece in the summer of 2012.

“We think that the hung parliament outcome could add to the EUR headwinds across the board. EUR/USD can move closer to the $1.3000 mark,” said.

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