One-third scenario Italy won’t have a government, Morgan Stanley warns

Over the next weeks, the EU Council will assess the progress made by individual countries in implementing the 2012 country-specific recommendations and the heads of government or state will also provide guidance on the Stability Programmes for 2013 and policy guidelines for individual European members.

But, while these are high-level meetings where technical decisions aren’t really taken, several countries seem keen to see an extension of the time to achieve their fiscal targets, research published by Morgan Stanley has warned.

“Over time, they’ll succeed, we suspect, thus easing the pace of austerity in the Eurozone. Finally, leaders will likely use the opportunity to discuss the bailout for Cyprus and the implications of the Italian elections outcome,” the bank said.

A resolution of the Cypriot situation will likely have to wait a while longer, while the Italian political environment is highly uncertain.

“Our base case is that Italy is able to form a albeit weak government, but we assign a one-third chance to our bear case that no viable cabinet can be put together, and new elections are needed. On the data front, German exports are likely to have grown strongly, supporting the notion that the global manufacturing cycle might be picking up,” the bank warned.


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