At den italienske regering har mistet sit flertal er ikke ensbetydende med nyvalg, vurderer ING. Ingen har interesse i et valg midt under coronakrisen. Desuden får Italien en betydelig støtte fra den nye EU-fond. Der bliver ikke stormvejr om Italien, og derfor vil Italien heller ikke påvirke euro-kursen.
Italian political turbulence unlikely to turn into a thunderstorm for markets
The Italian government looks set to face an imminent crisis. With early elections still looking unlikely, we think the market impact should be contained. We expect any BTP-bund spread to remain tight and do not see Italian politics as likely to hinder the EUR/USD and EUR/CHF appreciation path in 2021
Worst scenario for markets (elections) should be averted
Italy is on the brink of another government crisis after a small partner in the current ruling coalition (former Prime Minister Matteo Renzi’s “Italia Viva” party) withdrew its support as two Italia Viva ministers currently in the cabinet hand in their resignations.
Here are the possible scenarios (sorted from the least to most market-adverse):
- A simple cabinet reshuffle, where Italia Viva is granted some more influential ministers, but current PM Giuseppe Conte remains in office
- A cabinet reshuffle with a new PM (no clear candidates have emerged so far)
- Conte forms a new coalition with other smaller parties, but with a very thin and unstable majority in the parliament
- A technocrat-led national unity government, with the aim of implementing the EU’s Recovery and Resilience Plan (RRP)
- Early elections, possibly in May: latest polls suggest a right-wing coalition led by Matteo Salvini’s “Lega” should be able to secure a majority.
Considering all parties in the current ruling coalition would not have any political interest in going to the polls, we think a reshuffle (even with the possible removal of Conte as PM) is by far the most likely outcome of a government crisis.
The case for tight sovereign spreads is still solid
Political uncertainty is a temporary threat to our high-conviction view that the stars are aligned for Italian spreads over other eurozone bonds to tighten. Our argument rests on a rare conjunction of factors: aggressive European Central Bank purchases, low interest rates globally, and the promise of fiscal transfers between eurozone sovereigns.
So how much of a threat exactly? We think not much. Once the possibility of a reshuffle has been ruled out, two of the alternative outcomes, a new Conte-led coalition or a national unity government, would be benign for financial markets. Approval of the RRP this week is good news as it effectively lowers the stakes of the ongoing tensions. In case no majority can be found for a new coalition, a national unity government would be in charge of implementing the RRP. Only new elections are a serious threat to its timely implementation, and we doubt Italy is headed that way.
Political instability and sovereign spreads: this is not 2018
But let’s contemplate this last unlikely scenario for a moment. Even in the case of new elections, we doubt a repeat of 2018 is on the cards. On the left, Conte’s M5S is already in power and has reined in its most fiscally profligate instincts. On the right, none of the main parties are pushing their eurosceptic tendencies as far as questioning Italy’s eurozone membership. No doubt a Salvini-led government would prove a lasting irritant for the EU, but it should not call into question the three pillars of our constructive structural view on sovereign spreads.
Italy does not need new bond buyers
At most, a protracted period of political uncertainty would cause new potential buyers of Italian bonds to sit on their hands. In the unlikely event of new elections, this could be months. The point is however, Italy does not need new buyers. ECB purchases this year of around €160bn in our estimation should more than absorb net sovereign bond supply of €117bn. This should allow 10Y spreads over Germany to remain well within 150bp, and to resume their tightening when a new government is formed.
For the moment, the lack of any risk-premium embedded in either EUR/USD or EUR/CHF, according to our short-term fair value model, suggests there is very little concern in the FX markets about the political developments in Italy, in line with our view.
