Italy’s newly re-elected President Giorgio Napolitano has given the mandate to form a government to Enrico Letta, former deputy secretary of the left-wing PD party. According to HSBC, Italy is finally coming out of its political stalemate.
Italy’s newly re-elected President Giorgio Napolitano has given the mandate to form a government to Enrico Letta, former deputy secretary of the
left-wing PD party. According to HSBC, Italy is finally coming out of its political stalemate.
"The government will likely focus on the proposals of the ten wise men nominated by Mr. Napolitano last month. It is however hard to see the wide support needed to pass these reforms emerging in such a fragmented parliament. As such, once the key budget laws and electoral law reform are passed, Italy could head back to elections. This could happen as early as in autumn or early 2014," HSBC said.
The government he will head will, in all likelihood, be a mix of politicians and technocrats. President Napolitano will probably want senior figures from all three supporting coalitions in ministerial posts, in order to make them fully responsible of the government’s action. According to the bank, thisshould avoid a repetition of last year’s situation when parties distanced themselves from the Monti government as soon as it announced unpopular measures.
"As such, we think this government will first work on the budget and the electoral laws. Once these are achieved, the grand coalition may prove too weak to tackle delicate measures such as those suggested by the wise men. Unless the political environment becomes decisively more collaborative, Italy could thus head back to elections as early as in autumn or early 2014, in our view."
On the fiscal policy side, HSBC does not expect much change.
"Italy will continue on the consolidation path agreed with Europe. Some corrective measures may be needed in the second part of the year to ensure the public deficit does not overshoot the 3% limit, but we still have insufficient data to have clarity on the issue. In any case, considering the vast and heterogeneous coalition that should behind the new government, harsh fiscal measures are unlikely to be introduced," the bank said.