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Italian Polls Suggest Hung Parliament

5 March 2018PoliticsEurope
Italian Polls Suggest Hung Parliament - Citibank UK

At the time of writing, exit polls suggest a hung parliament – as no party was given a clear majority. But the anti-establishment parties performed stronger than expected.

The Five Star Movement (M5S) is projected to gain over 30% of votes, while League is projected to exceed Silvio Berlusconi's Forza Italia.

Former prime minister Berlusconi's center-right party and his far-right allies League could emerge as the largest bloc in parliament but fall short of a majority.

Meanwhile, the anti-establishment M5S has emerged as the biggest single party, according to exit polls. M5S's strong performance could make both a center-right government and a grand coalition more difficult.

The chances of M5S being involved in the next government could also rise significantly. Citi analysts believe M5S is willing to seek an alliance with other parties more than is generally perceived.

While Citi analysts do not expect another round of elections soon, the Italian constitution specifies no time limit for parties to reach an agreement or call a fresh election.

Official government negotiations will not start until after the Parliament reconvenes on 23 March. Citi analysts believe that the election of the house speakers – starting on that day – will be a key test. Forming the next Italian government will require negotiations that could well extend until the summer.

Citi analysts reckon a government – even if fragile – may eventually emerge and that the chances of another election in 2018 are rather small. A grand coalition of mainstream parties is possible, but probably only as a last resort option.

Italy will remain under the leadership of caretaker Prime Minister Paolo Gentiloni in the meantime.

According to Citi analysts, the chances of an Italian euro referendum or outright exit have fallen significantly over the past year, making the Italian vote far less risky for the eurozone.

What does this mean for investors?

The EUR was moderately weaker this morning in response, though still keeping most of recent gains according to Citi analysts.

However, uncertainty is likely to rise over what course Italian politics will take from here. Also read Europe Still Attractive Despite Political Uncertainty in Germany and Italy

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