1 March 2013Asset managementJust when you thought it looked like the market wassettling into a decent risk-on rally, we get an event like theindeterminate Italian election. Defying the opinion polls,there was a big protest vote in the form of support forthe anti-establishment Five Star Movement (M5S) and itsfigurehead, comedian Beppe Grillo. There was also a stronganti-austerity vote that went to the centre-right coalitionof Silvio Berlusconi’s Popolo della Libertà (PdL) and LegaNord (NL), after Mr Berlusconi promised to roll back recentunpopular (but necessary) taxes. The centre-left coalitionformed by the Partito Democratico (PD) and Sinistra EcologicaLibertà (SEL) under Pier Luigi Bersani disappointed in thepolls, and the technocratic Mario Monti, beloved of themarkets, saw his centrist alliance come in fourth. Marketshad been hoping for Mr Bersani and Mr Monti to get enoughvotes to form a coalition and continue most of the austerityand reforms of recent years.The complexities of the Italian electoral system mean that MrBersani’s PD secures just over half the Chamber of Deputiesby virtue of having the most votes. But the Senate is equallypowerful in Italy and no party has a majority there. Afterparliament convenes on 15 March, Mr Bersani will get the firstopportunity to form a government. To avoid getting into bedwith Mr Berlusconi, he will need to look for support from M5S.Mr Grillo has announced that M5S will not support anycoalition government, but some sort of deal betweenPD and M5S still looks most likely. Mr Grillo has longinsisted that he is the figurehead rather than the leader ofM5S. Unfortunately for him, the whole point about notbeing leader is that you do not get to lead. Now that theindependent-minded senators of M5S have got seats, theywill want to do something.It is the first time in Italian history that the outcome of thepolls has been so fragmented and it is hard to predict howthe political debate will evolve. However, the most likelyscenario could be that Mr Bersani will entice M5S with someof the legislation that they want – an anti-corruption law, aconflict-of-interest law, electoral reform – in exchange forproviding support for PD as a minority government. Such amove would be good for PD and M5S because it would bevery bad for PdL: amongst other reasons, such legislationcould actually prevent Mr Berlusconi from standing forelection again. PD might also be able to woo back some oftheir more left-wing voters that defected to M5S.
Senior Fixed Income EconomistUBS Global Asset Management firstname.lastname@example.org
Fixed Income EconomistUBS Global Asset Managementgianluca.email@example.com
Source: UBS Global Asset Management
The indeterminate result of the Italian election earlier thisweek has re-ignited uncertainty. The centre-left coalitionsecured a majority in the Chamber of Deputies but no partyhas a majority in the Senate. The most likely scenario is thatPD will form a minority government supported by M5Sbut new elections may be called within the year. Whatevergovernment is formed, the worry is that it could roll back theausterity measures and reform programmes introduced overthe past year. Market reaction to the election result was verymuted; either the market is optimistic about the chance for aviable government, or it still thinks the ECB will stand behindItaly regardless of the outcome.
Pizza pie chart
Composition of the new Italian parliament