Europe's Stock Markets Jarred by Political Risks

Published on: 27 Feb, 2018

Political analysts are sure about only one factor when it comes to Italy's coming elections: the polls will be affected by uncertainty. Italy now goes to the hustings after Germany went to the polls in September 2017. The Italians will cast their vote on March 4. The outcome is expected to be more exciting than Germany's. The Bundestag meanwhile continues to be pieced together by Chancellor Angela Merkel. The latter is deftly executing political moves with her coalition partners.

Italian elections are crucial to Europe as the country's economy is much more fragile compared to Germany. Analysts have already singled out the country as one of 2018's biggest risk factors. The European political arrangement was in a tizzy after the German elections. Italy, however, is a different country altogether. UBS, which has expressed positive sentiments concerning the Italian elections, has a warning for the equity investors. Although it has ruled out any kind of political shock, the report also stated that there can be “tail risk”. The latter could initiate a downside of a maximum of 15 percent for the Italian equities when compared to other European benchmarks.

If opinion polls are to go by, Italians will have a hung parliament after the polls get over.  Lorenzo Codogno of LC Macro Advisors, said in a well-researched note that the result of elections in Italy continues to remain extremely uncertain.

No single party will attain a majority so that it can govern the country alone. It must be said, however, that Italians are ambivalent towards voter surveys. The latter tends to be more wrong than right. The strongest coalition is expected to be the Forza Italia and Lega Nord one. It will be a right-wing group under the leadership of Silvio Berlusconi, the former Italian Prime Minister. The Lega Nord is an anti-systemic and anti-immigrant party. The polls may spell otherwise, pushing the fact that both these two may not obtain sufficient seats to coalesce into the majority government.

Cordogno, a trained economist, had pointed out how Italy has transformed into the most Euroskeptic of all eurozone nations. He pointed out that immigration is presently the hot-button topic of the present political campaign. The economist stated that any competing party in the Italian elections have budgetary issues in mind. His report reminded readers that Italy must formulate a solution to get rid of any undercapitalized banking system weighed down by colossal non-performing loans.


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Danny Abramov



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