Weekly Bond Update: No season to cheer
An increasingly hazardous cocktail of political and economic uncertainty means that investors cannot just sit back and relax this Christmas – from here on, vigilance is essential.
Chief Economist & CIO
We remain with our short EURCHF trade as best hedge or proxy for Italy
The Italian president is trying to play the usual political game with the usual rules – engineer a stalemate then impose a hawkish, austerity-minded, stick-to-the rules prime minister! (For more detail of how we got to this terrible juncture, see this article from Euractiv/Reuters.)
By using the Italian Constitution as an excuse, President Mattarella is clearly, in my view, making his own interpretation of what’s right and wrong. This is not going to go well with voters who are already upset. They want a “clash” or “confrontation” with the EU and and end to austerity,
That the president is right, does not remove the risk he takes by trying to appoint an ANTI- League and Five Star candidate to run the country!
The market agrees with me and we see higher Italian yields…..
Below is a short summary from our resident Italian fixed income star Althea:
What's the latest?
News from local Italian media highlight that President Mattarella is preparing to form a technocratic government led by Carlo Cottarelli
Who is Carlo Colatelli?
Colatelli is a former director of the IMF. He previously worked under the premier Enrico Letta to review public spending in 2013.
What are the issues that a technocratic government is facing?
The real problem is that without the support of the 5-Star Movement and the Northern League, a technocratic government will not obtain a parliamentary vote of confidence, which means that it will only be able to manage current affairs until a new election is held.
When can a new election take place?
The minimum time to call election in Italy is 45 days after the dissolution of the parliament by the president, but in order to organise voting from abroad it is necessary to have notice of at least 60 days. This means that if parliament is dissolved straight away, a vote is possible in the middle of the summer. However, there are important international deadlines such as the budget bill that needs to be presented to the parliament in October and approved in December. This could delay new elections until the beginning of next year.
What is the real risk? That populist sentiment will strengthen.
Former prime minister Silvio Berlusconi defends the move by President Mattarella to install a technocratic government, leading to new elections. This strained relations between Berlusconi’s Forza Italia party and Salvini’s Northern League party. The risk is that the rightist coalition will be broken and that the 5 Star Movement and the Northern league will form a coalition that has the potential to win the vote of majority in the nee elections, giving more power to a populist government which at that point would be unstoppable.
Is there a real case for impeachment? Short answer is no.
According to the constitution the president of the republic is not a mere executor of parties’ will and he has the obligation to safeguard the interest of Italian citizens if he needs to. In 1994, Berlusconi asked for Previti to become minister of Justice, however the President Scalfaro rejected Previti and the same happened in 2001 when President Ciampini rejected Maroni as minister of Justice.